9.4 Diversified Industries plc (DI) is a business that has interests in engineering, caravan manufacturing and a chain of shops selling car accessories. DI has recently been approached by the directors of Automobile Care plc (AC), a smaller chain of accessory shops, who wish to negotiate the sale of their business to DI. The following information, which has been extracted from AC’s financial statements, is available:

Years ended 31 December 2013 2014 2015 £m £m £m Revenue 18.1 28.2 36.9 Profit before taxation 3.2 4.1 7.3 Taxation (1.0) (1.7) (3.1)
Profit for the year 2.2 2.4 4.2 Dividend paid for the year 0.9 1.1 1.3 Issued share capital 16 million shares of 25p each 4.0 4.0 4.0 Reserves 8.0 9.3 12.2 AC’s market price per share at 31 December 2015 was £3.15.
Required:

(a) Calculate the following items for AC for 2015 and explain the use of each one:
1 earnings per share 2 price/earnings ratio 3 dividend yield (assuming a 10 per cent dividend income tax credit rate)
4 dividend payout ratio.

(b) Write some short notes on the factors the directors of DI should take into account when considering the possible purchase of AC. You should use the income statement details together with the figures that you calculated in your answer to part (a).