Equity Ratios For Investors - income

Question 1

EPS

Answer 1

Profit available to ordinary shareholders / no. of ordinary shares

Measure what you could have had NOT what the dividend actually was

Question 2

Dividend yield

Answer 2

net div per share / current share price x 100

Not very useful as dividend is notional

Question 3

Dividend cover

Answer 3

EPS / Div per share

Higher the number the better

<1 = raised reserves
= 1 paid out all profits
> 1 = could have afforded to pay more divs

Good to look at pattern of doc cover - one bad year in isolation or year on year?

Question 4

Pay out ratio

Answer 4

Inverse of div cover = amount of earnings which have been paid out

Div per share / EPS

Question 5

What are shareholder funds? (2)

Answer 5

Total assets - total liabilities

Question 6

What is meant by quality of earnings?

Answer 6

• accurately represents trading performance of the business
• not manipulates by accounting policies
• strong cashflow
• performance repeatable