Finance: Shareholder Ratios

Question 1

Shareholder ratios

Answer 1

Measure returns that shareholders gain from their investment.

Question 2

The rewards from being a shareholder:

Answer 2

• Dividends

- Capital Growth (Capital Gain)

Question 3

Shareholder Rewards - Dividends

Answer 3

• Payments made to shareholders by company from earned profits
• Amount paid is ‘per share’
• Normally no requirement to pay dividends, but most quoted companies do

Question 4

Shareholder Rewards - Capital Growth (Capital Gain)

Answer 4

• Arises from increase in value of business
• Reflected in an increase in share price
• Only realised when share is sold (price paid)
• No guarantee that a shareholding will increase in value

Question 5

Dividend per Share:

Answer 5

• Amount of dividend paid to each share

- An absolute measure

Question 6

Dividend Yield:

Answer 6

• Dividend expressed as percentage of share price

- A relative measure

Question 7

Dividend per share (£) =

Answer 7

Number of ordinary shares in issue

Question 8

The problem with this ratio: we don’t know

Answer 8

• How much shareholder paid for shares

- How much profit per share was earned which might have been distributed as a dividend

Question 9

Dividend Yield (£) =

Answer 9

Share price (pence)

Question 10

Evaluating Dividend Yield:

Answer 10

• Can be compared with other companies in same sector, rates of return on alternative investments
• Shareholders consider dividend yield in deciding whether to invest in first place.
• Unusually high yield might suggest an under-valued share price or possible dividend cut.
• Can change constantly as share price changes.