Profit Margin = Pretax profits / Turnover
Earnings Per Share
Tells you how much the company is making for each share in issue. This indicates how good the company is doing for its shareholders.
Earnings Per Share = Pre-tax Profit / No Of Shares
This is a measure of how safe a dividend is. It alos tells you the maximum dividend that the company could have paid if it had allocated all of its net profits.
Dividend Cover = Net Profit / Dividend Allocation
Return on Assets
Can be used to measure the efficiency of one company with another.
Very useful for comparing one company or another company in the same or similar business.
Used predominently for comparison purposes.
It is a measure of the profits the company earns relative to the capital employed in the business.
As such, it can be used as a measure of the efficiency of one company against another, though it needs to be used with care.
Analysts ratios - It is often used to see what the market is willing to pay for companies in the same sector. This is not obvious as the share prices of all these companies will be different.
What we need is a way of comparing the profits per share
The relationship of share price to profit is the P/E ratio (Price / Earnings Ratio)
One of its key uses is to help set an initial price when a company has an IPO.
This ratio can be used to determine whether a share price appears cheap or expensive relative to its market peers.
Gross Dividend Yield
(often referred to as the yield) and used to compare the return with bonds
This is Gross Dividend / Share Price
Analysts often talk of the yield ratio. This is the ratio between the yield on government bonds and the yields on shares.
As shares may have capital gain - the yield is usually less than on medium maturity bonds.
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