Profitability analysis for companies

Question 1

Earnings per ordinary share

Answer 1

This measures the amount of money each share would receive if all the profits were distributed. The higher, the value, the better. This ratio is expressed in dollar terms.

Question 2

Earnings yield

Answer 2

This ratio measure’s the rate of return that an investor will earn at the current market price of shares.

This ratio is expressed as a percentage.

A higher result would indicate a company that is able to pay high dividends to shareholders.

Note that changes in the share price will significantly change the earnings yield.

Question 3

Dividend per ordinary share

Answer 3

This message is the actual dividend paid for each share owned.

This ratio is express in dollar form so a potential investor can estimate their income from owning shares in the business.

A high result would indicate that the managers believe that the business has strong liquidity and cash flow to make dividend payments.

Question 4

Dividend yield

Answer 4

This ratio measures the actual return on investment for shareholders if they bought the shares at the market price.

Dividends are the income from owning shares.

However, a company with high profit and a low dividend yield would indicate reinvestment for long-term growth. This may appeal more to some potential investors.