Shareholder's investment ratios

Question 1

Earnings per share

Answer 1

the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company’s profitability.

EPS = (Net Income - Dividends on Preferred Stock) / Average Outstanding Shares

Question 2

Dividend per share

Answer 2

Dividend per share (DPS) is the sum of declared dividends issued by a company for every ordinary share outstanding. Dividend per share (DPS) is the total dividends paid out by a business, including interim dividends, divided by the number of outstanding ordinary shares issued. A company’s DPS is usually derived using the dividend paid in the most recent quarter, which is also used to calculate the dividend yield.

Question 3

Price Earning Ratio

Answer 3

The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

= Market Value per Share / Earnings per Share

• Generally a high P/E ratio means that investors are anticipating higher growth in the future.
• The average market P/E ratio is 20-25 times earnings.
• The P/E ratio can use estimated earnings to get the forward looking P/E ratio.
• Companies that are losing money do not have a P/E ratio.

Question 4

Earnings yield

Answer 4

shows the percentage of each dollar invested in the stock that was earned by the company

= EPS/ Market price per share

Question 5

Dividend yield

Answer 5

A financial ratio that indicates how much a company pays out in dividends each year relative to its share price. Dividend yield is represented as a percentage and can be calculated by dividing the dollar value of dividends paid in a given year per share of stock held by the dollar value of one share of stock.

Question 6

Dividend cover

Answer 6

the ratio of company’s earnings (net income) over the dividend paid to shareholders, calculated as net profit or loss attributable to ordinary shareholders by total ordinary dividend. So, if a company has net profit after tax of 2400 divided by total ordinary dividend of 1000, then dividend cover is 2.4.

= EPS/ Dividend per share

Question 7

DuPont decomposition

Answer 7