investor ratios

Question 1

what is the earnings per share ratio ?

Answer 1

shareholders profit/ total shares in issue = £/p

Question 2

what is the interpretation ?

Answer 2

those who want to buy shares in a company would view EPS as the indicator of the earning ability of the shares. we want this to be as high as possible

Question 3

what is the dividend cover formula ?

Answer 3

profit after tax/ dividends

Question 4

what is the interpretation of dividend cover formula ?

Answer 4

Expanding companies with new projects to invest in may pay out proportionally less in dividends; mature “cash cows” proportionally more
The safety of future dividends may depend on a relatively cautious payout now!

Question 5

what are 3 limitations of ratios ?

Answer 5

highlights changes but doesn’t explain
deterioration doesn’t necessarily mean bad management
it paints a broad picture but not a specific one