1 Key Financial Ratios

Financial Ratios

As an investor, it is important to understand key financial indicators and ratios, how they are calculated and what they represent about the
performance of an individual listed company.
 Key Financial Ratios 2

The following table provides a few financial ratios as reference:

Return on Equity % Return on Equity = Net profit / One of the most important indicators used to measure the company’s
shareholder’s equity potential return on investment.

Retention Ratio Retention Ratio = (Net Profit - The value of net profits which the company has re-invested for the
Dividend) / Net Profit purpose of expanding and increasing its earnings instead of distributing
them among the shareholders.

Reinvestment Rate Reinvestment Rate An indicator containing the return on equity and retention ratio indicators
= Return on Equity used to calculate the reinvestment rate.
x Retention Ratio

Dividend Yield % Dividend Yield = The percentage of the dividend distributed by the company as a
(Annual Dividends proportion of the share price.
per share x 100) / Share Price

Price Earnings Price Earnings Ratio = A high price earnings ratio indicates the market participants’ confidence in
Ratio % Share Price / Earnings the share, but a very high ratio means an excessive share price. On the
per Share other hand, a low price earnings ratio indicates a share value less than the
actual value and is considered a good purchase opportunity for investors.
The price earnings ratio represents the relation between the share price
and the earnings per share. The earnings per share is the amount of
earnings per each outstanding share of a company’s stock.

Turnover Ratio % Turnover Ratio % = (Value of The higher the turnover ratio, the greater the demand for the share and
(times) Traded Shares x 100) / Market the higher the possibility of trading and selling it at any time.
Capitalization