PCIAM - Financial Statement Analysis

Question 1

EPS

Answer 1

Earnings per share, income statement

Net profit - preference dividend
———————————————
No of ordinary shares

Question 2

ROE

Answer 2

• Return on equity or Return on shareholders funds = profitability ratio.
• measures effectiveness of company generating profits using the company’s assets.
• measures the % of return a company is achieving on the amount of funds provided by the shareholder.

ROE = profit after tax and pref. divs
——————————————-
Capital & reserves (shareholders funds)

Question 3

ROCE

Answer 3

• Return on capital employed = profitability ratio
• trying to identify profit, so income and tax excluded, making it a better comparison than ROE.

ROCE = profit before interest & tax
—————————————
Capital employed

Where CE = eq + non-currant liabilities
Or CE = total assets + current liabilities