These are the ratios which help equity shareholders and other investors to assess the value and quality of an investment in the ordinary shares of the company. They are:
- Earnings per share
- Dividend per share
- Dividend cover
- Price earning ratio (P/E ratio)
- Dividend yield
- Earnings yield
The value of an investment in ordinary share in a listed company is its market value, and so investment ratios must have regard not only to information in the company’s published accounts, but also to the current price, and the fourth, fifth and sixth ratios all involve using the share price.
We will discuss these ratios in our next post.