Self-test Andreas Sugaro is considering investing £100,000 in the shares of either Thessaloniki plc (current market price 64p per share) or Athena plc (current market price 98p per share).

Information on each company, relating to the year ended 30 April 2006, is given below.

Thessaloniki plc Figures from the profit and loss account £000 Profit after taxation 1,136 Preference dividend 360 Interim dividend 300 Final proposed dividend 500 Retained profit (loss) (24)

Balance sheet extracts at 30 April 2006 Athena plc Thessaloniki plc

£000 £000 Ordinary shares of 50p each 6,000 8,000 12% preference shares of £1 each – 3,000 Share premium account 900 1,200 Reserves 1,840 860 8,740 13,060 8% debentures – 6,000 8,740 19,060 Athena plc Thessaloniki plc Earnings per share 6.37p Price earnings ratio 15.4 Dividend yield 4.6%

Gearing Not geared Dividend cover 1.41 0.97 Dividend per share 4.5p 5p Required:

(a) For Thessaloniki plc, calculate (stating the formula in each case) the following investment ratios:

(i) earnings per share;

(ii) price earnings ratio;

(iii) dividend yield;

(iv) gearing.

(b) Commenting on the price earnings ratio, dividend policies and gearing, advise Andreas in which company he should make his investment.