Investment ratios (A Level) flashcards

Topic 2.2: Investment ratios

Earnings per share: formula, and EPS for profit after tax 945,000, preference dividends 45,000, 6,000,000 ordinary shares

(Profit after tax − preference dividends) ÷ number of ordinary shares. 900,000 ÷ 6,000,000 = 15.00 cents.

Price earnings ratio: formula, and P/E for a price of 342 cents and EPS of 19 cents

Market price per share ÷ EPS. 342 ÷ 19 = 18.00 times.

Dividend per share for ordinary dividends paid of 1,050,000 on 15,000,000 shares

1,050,000 ÷ 15,000,000 = 7.00 cents. Preference dividends are never included.

Dividend yield: formula, and the yield for DPS 6.3 cents and a share price of 210 cents

Dividend per share ÷ market price × 100. 6.3 ÷ 210 × 100 = 3.00%.

Dividend cover for profit after tax 2,240,000, preference dividends 140,000, ordinary dividends 700,000

(2,240,000 − 140,000) ÷ 700,000 = 3.00 times.

Company ROCE: profit from operations 1,092,000; ordinary shares 4,000,000; preference 1,000,000; reserves 2,200,000; debentures 1,600,000

Capital employed = issued shares (ordinary + preference) + reserves + non-current liabilities = 8,800,000. 1,092,000 ÷ 8,800,000 × 100 = 12.41%.

Ordinary share capital 2,500,000 in shares of 0.25. How many shares are in issue?

2,500,000 ÷ 0.25 = 10,000,000 shares.

EPS is 24 cents before a 1 for 1 bonus issue and earnings do not change. EPS afterwards?

The number of shares doubles, so EPS halves to 12.00 cents, with no change in performance.

Why can a rising dividend yield be bad news?

Yield rises when the share price falls. A falling price may mean the market expects lower profits or a dividend cut.

Which two investment ratios share the same numerator?

EPS and dividend cover: both use earnings (profit after tax less preference dividends).