a$)$ Define the $\frac{P}{E}$ ratio and explain its importance to those interested in company financial

analysis. Include in your answer explanations of what $\text{'}P\text{'}$ and $\text{'}E\text{'}$ stand for, what the $\frac{P}{E}$

ratio, and movements in the ratio, can indicate to investors and others, and how the $\frac{P}{E}$

ratio is related to the concept of EPS?

$(6$ marks$)$

b$)$ Fylde plc has the following after$-$tax profits for its two most recent accounting periods:

On $1$ January $2014,$ the company's issued share capital consisted of $500,000$ ordinary

shares of $50$ p each and $100,00010\%$ preference shares of $1$ each. On $1$ August $2016,$ the

company made a $1$ for $10$ bonus issue for $500,000$ ordinary shares $($no bonus issue for

preference shares$).$

The preference dividend was paid in full both the year to $31$ December $2015$ and the year to

$31$ December $2016.$

Required:

i$.$ Calculate the basic EPS for the year ended $31$ December $2016$ and explain how the

bonus issue should be treated when calculating the number of ordinary shares for

the year ended $31$ December $2016.$

$(4$ marks$)$

ii$.$ Calculate restated basic EPS for the year ended $31$ December $2015$ and explain why

this restatement is necessary.

$(3$ marks$)$

c$)$ On $1$ March $2015,$ Alex plc issued $2$ million of $6\%$ convertible loan stock. The holders of this

stock may choose to covert the stock to ordinary shares on $1$ January $2018,2019$ or $2020.$

The number of ordinary shares into which the stock will be converted is as follows:

The company's profit after tax for the year to $31$ December $2016$ was $2\mathrm{.}2$ million. The

comparative figure for the year to $31$ December $2015$ was $2\mathrm{.}4$ million. The company pays

tax at $20\%.$

On $1$ January $2015,$ the company's issued share capital consisted of $2$ million $10\%$ preference

shares of $1$ each and $5$ million ordinary shares of $20$ p each. On $1$ April $2016,$ the company

bought back $1\mathrm{.}2$ million ordinary shares at full market price.

The preference dividend was paid in full both the year to $31$ December $2015$ and the year to

$31$ December $2016.$

Required:

i$.$ Calculate the basic EPS and diluted EPS for Alex plc for the year ended $31$ December

$(6$ marks$)$

ii$.$ Calculate the basic EPS and diluted EPS for Alex plc for the year ended $31$ December