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Interpretation of financial statements

Investor ratios

4.1 Earnings per share (EPS)

Profit available to ordinary shareholders
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Number of ordinary shares

Covered in Chapter 14.

4.2 Price/Earnings (P/E) ratio
Current share price

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Latest EPS
 Represents a measure of market confidence in company’s capacity for growth

 High P/E ratio suggests that high growth is expected

4.3 Dividend yield

Dividend per share

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Current share price

 Potential return on investment for prospective investors

 Can be compared to yields available on alternative investments

4.4 Dividend cover

Profit after tax

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Dividends

 Similar to interest cover, indicates how many times current dividend could be
paid from current profit level

 High cover indicates that current dividend level is able to be maintained

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