Dividend Coverage Ratio Assignment Help

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Dividend Coverage Ratio

This ratio measures the adequacy of profits to cover the dividends. This ratio safeguards the preference shareholders dividend incomes. The formula is,

         Dividend Coverage Ratio (for preference shareholders)

                                                 1583_debt coverage ratio.png

 

         Dividend Coverage Ratio (for equity shareholders)

                                                2242_debt coverage ratio1.png

This ratio indicates the profits available to equity shareholders. The dividend coverage ratio reflects the dividend policy of company. A high cover indicates that the company operates a conservative dividend policy and does not distribute large portion to equity interest.

From the following information calculate the cover for preference and equity dividend.

 

Rs.

Capital: 7% preference shares of Rs.100 each

3,00,000

Equity shares of Rs.10 each

8,00,000

Profit after tax

2,71,000

Equity dividend rate

20%


1179_dividend coverage ratio.png

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