Investment Return

Question 1

Dividend payout ratio

Answer 1

Dividend payout ratio = Dividends/Net profit

-> The proportion of earnings paid out to shareholders

Question 2

Dividend yield

Answer 2

Dividend yield = Dividends per share/Share price

-> The cash return on shareholders investment

Question 3

Earnings per share(EPS)

Answer 3

EPS = Net profit/Average#of common shares

where Net profit is after taxes and preferred dividends.

• > Measures the earnings generated by the business and available to shareholders.
• > Not good for firm comparison -> nominal value of shares differ.

Question 4

Price/Earnings(P/E)

Answer 4

Price/Earnings = Share Price/EPS

• > high P/E shares are more expensive per unit of net income -> measures market confidence
• > High earnings growth typically lead to high P/E

Question 5

DuPont Analysis

Answer 5

ROE = Net profit/Equity
= Net profit/Sales x Sales/Assets x Assets/Equity

Profitability(Net profit margin) = Net Profit/Sales
Efficiency(Asset Turnover) = Sales/Assets
Leverage(Gearing) = Assets/Equity