Page 31 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Objectives

6.4 Investor ratios

If an entity is quoted, this is arguably the most important area, since
the ratios in this area will show whether the rest of the market
perceives the entity positively or not.

P/E ratio Dividend cover Dividend yield

EPS/Dividend per
Share price/EPS share (DPS) DPS/Share price

A high P/E ratio High dividend cover
indicates that the will reassure A basic measure of
market has confidence investors that yield to shareholders.
in the company. dividend levels are
likely to be
maintained even if
profits fall.

EPS (earnings per share) =

(Profit after interest, tax and preference dividends)/Number of shares

A better measure of Total Annual Return to Investors (taking account of
capital gains as well as dividends) would be

[(closing share price – opening share price) + dividend]/opening share
price

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