Week 6- Capital Structure And Ratios

Question 1

What does gearing mean?

Answer 1

Gearing measures the extent to which a business is financed by debt rather than equity capital.

Question 2

What is interest cover?

Answer 2

Interest cover tells you how many times the operating profit covers the interest expenses. This is caudated as:
Operating profit x interest expense

Question 3

What does earnings per share mean?

Answer 3

Earnings per share considers how much profit is being made for each share.

Question 4

What are investment ratios?

Answer 4

Earnings per share
Price to earnings ratio
Dividend yield
Dividend cover

Question 5

What are earnings per share?

Answer 5

A fundament ratio that shows how much profit is being made for each share. It’s shown as:
Profits after tax and after preference dividends| number of ordinary shares

Question 6

What is meant by Earnings per share?

Answer 6

A fundamental ratio that shows how much profit is being made for each share. It is shown as: market share price| earnings per share

Question 7

What are price to earnings (PE)?

Answer 7

This is a ratio that compares the market price of a share with the profit earned per share. It is therefore a reflection of the market expectations for the companies shares.

Question 8

What is the market price of the share?

Answer 8

The cost of purchasing a share on the stock market.

Question 9

What is the dividend yield?

Answer 9

The dividend yield compares the dividend received from a share with the market price of a share. Shown as dividend paid per share| market price per share x 100

Question 10

What is the dividend cover?

Answer 10

The dividend cover considers the extent to which available profits can meet dividend payments. Shown as:
Profit of the year (after tax) | ordinary dividend paid, or
Earnings per share | dividend per share