Answer to Question #228017 in Financial Math for Nachiket

Question

Take Britannia Industries Ltd as a case. In the context of its financial statements and

annual report answer the following

a. It’s a largely acceptable practice among the corporate entities to pay dividend to its

shareholders. Take Britannia Industries Ltd as a case. Discuss and differentiate the

types of dividend the company paid for the financial year 2020-2021. Also, mention

your understanding about what could be the accounting treatment of Dividend in the

books of Britannia Industries Ltd. (5 Marks)

b. Discuss and share your understanding on any three profitability ratios which you feel

relevant to assess the profitability of the company.

"LONG ANSWER"

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Answer 1

a) A dividend is a share of profits and retained earnings. It is normally paid when company makes profit for the ordinary shareholders. In the year 2020-2021, Britannia Industries declared an equity dividend of 15,750.00% amounting to Rs 157.5 per share as the final dividend. Further, Britannia Industries paid interim dividends which they declared on 17-08-2020 for Rs 83. Interim dividend are paid at half year after having the results of the first half of the year. Final dividends are paid after the year have ended and the books been audited and results published. The accounting treatment of Dividend in the books of Britannia Industries Ltd is that dividends are always treated as expenses since they reduce the profits especially the interim dividends. The final dividends are treated as a reduction of the retained earnings.

b) Profitability ratios help determine whether the company is making profits to the company or not and if yes by how much. The key profitability ratio would include;

Net profit margin - measures the how much net income generated by the firm as a percentage of revenue.

Return on Equity - measures the rate of return that the owners of common stock of a company receive on their shareholdings. Shows how good the company is utilizing the Britannia Industries shareholders funds to generate profits.

Operating profit margin- measures how much profit a company makes on a dollar of sales after paying for variable costs of production, such as wages and raw materials, but before paying interest or tax.