Investor ratios

Question 1

Total shareholder, return

Answer 1

Dividend plus change in price

Divided by

Price at start of year

Question 2

Earnings yield

Answer 2

Earnings per share

Divided by

Share price

Question 3

Dividend yield

Answer 3

Dividends per share

divided by

Share price

Question 4

Dividend payout ratio

Answer 4

Dividends per share

Divided by

Earnings per share

Question 5

price, earning ratio

Answer 5

Share price

Divided by

Earnings per share

Question 6

Lower PE ratio

Answer 6

Indicates higher risk and perhaps higher gearing

Question 7

Higher, P/E ratio

Answer 7

Suggest high predicted growth or low risk.

What is the markets view of our future growth?

Question 8

Preference dividend

Answer 8

Deducted before earnings, just as other debt instrument costs are deducted

Question 9

Shareholder wealth, maximisation is most consistent with

Answer 9

Maximisation of the present value of future cash flows

Question 10

Interest rates rising

Knock on effect with price earnings ratio

Answer 10

If interest rate increase, it will often mean that investors switch from investing in shares to debt securities.

The share price will often fall as result thus lowering the P/E ratio.

Question 11

Most likely to benefit from strategies that increase the risk of return of a company

Answer 11

Equity shareholders

Question 12

The agency problem

Answer 12

When managers have low accountability to share holders and access to better information

Question 13

P/E ratio from dividend yield and dividend payout ratio

Answer 13

Dividend payout ratio

divided by

dividend yield

Question 14

Asset turnover from other ratios

Answer 14

ROCE

Divided by

Operating profit margin

Question 15

Operating profit versus gross profit

Answer 15

Gross profit is the amount of businesses earned minus the direct costs of manufacturing all the costs of good sold.

Operating profit is the amount of gross profit minus operational costs.

Net profit is the total amount leftover after this is accounted for all deductions, including interest and taxes

Question 16

High operating leverage

Answer 16

A High proportion of fixed costs relative to variable costs

Question 17

High beta factor

Answer 17

High sensitivity to swings in the business cycle

Question 18

Compound annual growth rate calculation

Answer 18

Number of years

To the square root of

New value divided by historical value

-1

Question 19

Key, stakeholders of charity

Answer 19

Beneficiaries

Question 20

Which two of the following would lead to an increase in the general level of interest rates?

Answer 20

A rise in the level of government borrowing

Greater demand for borrowing from businesses.

Question 21

Which two of the following would lead to decrease in the general level of interest rates?

Answer 21

I reduction in the rate of inflation

Government, relaxing constraints on growth in the money supply

Question 22

Dividend cover from other calculations

Answer 22

Earnings per share

Divided by

Dividends per share

Question 23

Bonds payout, percentage

Based upon

Answer 23

The nominal value not the market value

Question 24

Factors that devalue a currency

Answer 24

High levels of inflation

Low levels of interest rates

Current account deficits (a country is spending more on foreign trade than it is earning – it is borrowing capital from foreign sources to make up the deficit )

Public debt – this will increase inflation

Terms of trade – an unfavourable terms of trade shows that is decreasing demand for countries exports

Poor economic performance (including political turmoil) - this will deter investments away from the country