Assignment # 3

Zaeem Asif
L1F17BSAF0062
Section “B”
Submission Date
7th June 2020
Submitted to:
Sir. Abid Noor
What do you mean by shareholder’s equity analysis? What
are the main ratios to be discussed under this segment,
explain them in detail.

Shareholder equity Analysis

Shareholders equity is a measure of how much of a company's net
assets belong to the shareholders. Shareholders equity is the amount
that shows how the company has been financed with the help of
common shares and preferred shares. Shareholders equity is also called
Share Capital, Stockholder’s Equity or Net worth.
Shareholders’ equity=total assets−total liabilities
Shareholders equity is also called Share Capital, Stockholder’s Equity.
Shareholder’s equity can be calculated by adding share capital to
retained earnings and subtracted by treasury shares.
you’re investing and buying stock in a company. Shareholders equity is
the amount that shows how the company has been financed with the
help of common shares and preferred shares.

Shareholders equity
somewhat reflects a company’s dividend policy, because it reflects a
company’s decision to either reinvest profits or pay them out to
shareholders
Part of Shareholders’ Equity
• Preferred shares
Preference shares, more commonly referred to as preferred stock, are
shares of a company’s stock with dividends that are paid out to
shareholders before common stock dividends are issued. If the company
enters bankruptcy, preferred stockholders are entitled to be paid from
company assets before common stockholders. Most preference shares
have a fixed dividend, while common stocks generally do not.
• Retained earnings:
Retained earnings are the profits that a company has earned to date,
less any dividends or other distributions paid to investors. This amount is
adjusted whenever there is an entry to the accounting records that
impacts a revenue or expense account. A large retained earnings
balance implies a financially healthy organization.

• Treasury shares:
Treasury stock, or reacquired stock, is a portion of previously issued,
outstanding shares of stock which a company has repurchased or
bought back from shareholders. These reacquired shares are then held
by the company for its own disposition.

• common stock, or issued capital

Share capital is the money a company raises by issuing common or
preferred stock. The amount of share capital or equity financing a
company has can change over time with additional public offerings. The
Issued Capital refers to the number of shares issued by the company to
the shareholders. In other words, the shares allotted or subsequently
held by the shareholders is called the issued capital.

Shareholders’ Equity Ratios

 1. EPS ratio (Earning Per Share)
2. Dividend Yield
3. Price Earnings ratio (P/E ratio
4. Dividend per share
5. Dividend cover
6. Retention ratio

7. Price-to-book ratio

• EPS ratio (Earning Per Share)

Earnings per share (EPS) is the portion of the company's distributable
profit which is allocated to each outstanding equity share (common
share). Earnings per share is a very good indicator of the profitability of
any organization, and it is one of the most widely used measures of
profitability.

• Dividend Yield
It is a financial ratio that measures the annual value of dividends
received relative to the market value per share of a security.
The dividend yield is used by investors to show how their investment in
stock is generating either cash flows in the form of dividends or
increases in asset value by stock appreciation.
The Dividend Yield is a financial ratio that measures the annual value of
dividends received relative to the market value per share of a security.
• Price Earnings ratio (P/E ratio)
The price earnings ratio, often called the P/E ratio or price to earnings
ratio, is a market prospect ratio that calculates the market value of a
stock relative to its earnings by comparing the market price per share by
the earnings per share. In other words, the price earnings ratio shows
what the market is willing to pay for a stock based on its current
earnings.
The Price Earnings Ratio (P/E Ratio) is the relationship between a
company’s stock price and earnings per share (EPS). It is a popular ratio
that gives investors a better sense of the value of the company.

• Dividend cover
Dividend Coverage Ratio states the number of times an organization is
capable of paying dividends to shareholders from the profits earned
during an accounting period
Dividend cover, also commonly known as dividend coverage, is the ratio
of company's earnings over the dividend paid to shareholders,
calculated as net profit or loss attributable to ordinary shareholders by
total ordinary dividend..
Dividend Coverage Ratio = Net income / Dividend declared
It is calculated by dividing net income available for common stock-
holders by the dividends paid to the common stock-holders. Dividend
coverage ratio is inverse of dividend payout ratio.
Formula
Dividend Cover Ratio= Profit after tax - Dividend paid on
Irredeemable Preference Shares/ Dividend paid to Ordinary
Shareholders

• Dividend per share

Dividend Per Share (DPS) is the total amount of dividends attributed to
each individual share outstanding of a company. Calculating the
dividend per share allows an investor to determine how much income
from the company he or she will receive on a per-share basis.
The measure is used to estimate the number of dividends that an
income investor might expect to receive if he or she were to buy a
company's common stock.
Dividend Per Share = Total Dividends Paid / Shares Outstanding

• Retention ratio
The retention ratio is the proportion of earnings kept back in the
business as retained earnings. The retention ratio refers to the
percentage of net income that is retained to grow the business, rather
than being paid out as dividends. It is the opposite of the payout ratio,
which measures the percentage of profit paid out to shareholders as
dividends. The retention ratio is also called the plowback ratio.
he retention ratio refers to the percentage of net income that is retained
to grow the business, rather than being paid out as dividends
 • Price-to-book ratio
The price-to-book ratio, or P/B ratio, is a financial ratio used to compare
a company's current market price to its book value. Book value is also
the net asset value of a company calculated as total assets minus
intangible assets (patents, goodwill) and liabilities. The market value of a
company is its share price multiplied by the number of outstanding
shares.
it’s a calculation that measures the difference between the book value
and the total share price of the company.