In: Accounting
Shareholder ratios minimum of three formulas?
Main purpose of the shareholder ratios is use to analysis/ measure the returns that shareholders gains from their investment. There are many such but few ratios that can be used by shareholders in order to assess the worth of a particular company and their shares are:
1. Earning per Share (EPS) -
= Profit after Tax/ nos of ordinary share
· if a company has profit after tax of $18m and it has issued 40 million ordinary shares, then its E.P.S. would be:
· = $18m / 40m = $0.45
· This means that every ordinary share could pay a dividend of $0.45 IF all the profit after tax is distributed as dividends. However, it is most unlikely as company would require profit for reinvestment in business
2. Price Earning Ration (PE ratio) -
= Market Price per Share/ Earning Per Share
· Lets continue above example where MP is $2.00; PE ratio would be:
· = $2 / $0.45 = 4.44
3. Dividend Per Share (DPS) -
= Total Dividend paid/ Total Nos of share
· Lets’ say in above example Dividend paid is 20% of PAT i.e $3.6 m (20% x 18m; DPS would be:
· = $3.6 m/ 40m = $ 0.09
· This means ever shareholder is paid dividend of $ 0.09 while remaining of $ 18m is reinvested in business.
4. Dividend Yield (%)-
= (Dividend Per Share / Market Price per Share) x 100
· Lets’ continue above example; Dividend yield would be:
· =( $0.09/ $ 2.00) x 100 = 4.5 %
· But of course this is not very high return and above need to compare with other investment to see if investment is giving competitive return.
5. Dividend Cover (times)-
= Profit After Tax / Total Dividend paid
· Lets’ continue above example; Dividend yield would be:
· = $ 18 m/ $3.6m = 5 times
· Company has not paid significant portion of its earning and retained the same for reinvestment in business