investors ratio analysis

Question 1

dividend cover formula

Answer 1

earnings/dividends

Question 2

dividend payout ratio formula

Answer 2

dividend for year / EPS

Question 3

PE ratio

Answer 3

market price / EPS

Question 4

EPS formula

Answer 4

earnings / number of shares

Question 5

dividend yield formula

Answer 5

cash dividend per share / market price

Question 6

dividend cover definition

Answer 6

calculates how many times a company can pay dividends to its shareholders using net income

Question 7

dividend cover interpretation

Answer 7

• if the dividend coverage ratio is greater than 1, it indicates that the earnings generated by the company are enough to serve shareholders with their dividends
• a DCR above 2 is considered good

Question 8

dividend yield definition

Answer 8

shows how much a company has paid out in dividends over the course of a year

Question 9

dividend yield interpretation

Answer 9

If a company’s dividend yield has been steadily increasing, this could be because they are increasing their dividend, because their share price is declining, or both. Depending on the circumstances, this may be seen as either a positive or a negative sign by investors.

Question 10

PE ratio definition

Answer 10

the proportion of a company’s share price to its earnings per share

Question 11

PE ratio interpretation

Answer 11

• A high P/E ratio could signal that a stock’s price is high relative to earnings and is overvalued.
• a low P/E could indicate that the stock price is low relative to earnings.

Question 12

dividend pay-out ratio definition

Answer 12

the portion of a company’s earnings that are paid to shareholders in the form of dividends.

Question 13

dividend payout interpretation

Answer 13

• Investors can use DPR to assess a company’s financial health and stability. A good DPR is between 30–50%.
• A DPR below 50% can give a company flexibility to reward shareholders while reinvesting in new projects.
• A consistently high DPR may indicate a mature company with limited growth opportunities.
• a low DPR may suggest a growth-oriented company that reinvests more earnings back into the business

Question 14

EPS ratio definition

Answer 14

a measure of a company’s profitability that indicates how much profit each outstanding share of common stock has earned.

Question 15

EPS ratio interpretation

Answer 15

A higher EPS indicates greater value because investors will pay more for a company’s shares if they think the company has higher profits relative to its share price.