Client:
2/4
Subject: Interpretation of Financial Statements
Period:
RATIOS
3. Earning and Investment Ratio
(a) Dividend Cover (or ratio
of profit available for
ordinary dividend to
dividend paid or "Payout
Ratio"
(b) Earning Yield Ratio
(c) Dividend Yield Ratio
(d) Price Earning Ratio
Prepared By: Date:
Reviewed By: Date:
FORMULA FOR CURRENT YEAR PREVIOUS YEAR
COMPUTATION SIGNIFICANCE W/P REFERENCE COMPU- RESULT COMPU- RESULT COMMENTS
TATION TATION
Profit available for ord. Reflects the "plough-back"
dividend and distribution policies of
Ordinary dividend paid the directors. High ratio
indicates the prudent policy to
strengthen the financial
position of the business.
Earning per share
Market price per share
Dividend per share
Market price per share
Market price per share This is another way of
Earning per share expressing the return from
investment in ordinary shares
at current market price.
This computation shows how
long it will take to recover
the amount invested in
ordinary shares at current
price if the current level
of profit is maintained. The
recovery is in the form of
dividends and profit retained
in the business.