Low yields indicates high growth company , high yields indicate low growth (or underrated)
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Dividend cover
Earnings per share/ Dividend per share
How many times we can cover this years dividend with our yearly earnings. Higher number is better (times)
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Payout ratio
Dividend per share / earnings per share
% of yearly earnings are needed to pay this years dividend, lower percentage preferred
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Absolute valuation technique
Based on discounting techniques, used to estimate the value of equity as the present value of future equity returns to the investor
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Earnings per share
Profit available to ordinary shareholders / Number of ordinary shares
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Diluted EPS
worst case scenario calculation. Assumes that any potentially dilutive securities are converted into ordinary shares. Potentially dilutive securities include directors share options, warrants, convertible debt securities
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P/E Ratio
Measures how highly investors value a company as a multiple of its earnings.
Market price per share / EPS
High P/E ration means investors expect above avg performance and growth. Low is opposite.
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Weaknesses of P/E ratio
based on accounting profit, derived using accounting estimates. Can have a low P/E ratio due to the cyclical nature of the industry
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EV/EBITDA multiple
more comparable measure of earnings.
Enterprise Value / Earnings before interest tax depreciation amortisation
enterprise value is MV of debt and MV of equity
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Price/Book ratio
Used book value of assets instead of earnings.
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Price / sales ratio
Sales instead of earnings.
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Price / cash flow ratio
cash flow instead of earnings. cash in unaffected by accounting policies
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Gearing
The proportion of capital which is debt financed and the proportion that is provided by shareholders.
Total long term debt / total equity.
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Current ratio
Current assets / current liabilities
Gives indication of whether assets which convert into cash within one year cover liabilities crystallising in the same period
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Quick ratio "acid test"
current assets - stock / current liabilities
Removes least liquid current asset for a tighter measure
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Operational gearing
Percentage change in trading profits which results from a one percent change in sales revenue.
(sales rev - var. costs) / Trading profits
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ROCE
Profitability relative to size.
Profit before tax & interest / capital employed
capital employed is the share capital plus reserves plus long term borrowing
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Asset turnover
Revenue / total assets
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prospective P/E
Current share price / future earning
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Other cards in this set
Card 2
Front
Earnings per share/ Dividend per share
How many times we can cover this years dividend with our yearly earnings. Higher number is better (times)
Back
Dividend cover
Card 3
Front
Dividend per share / earnings per share
% of yearly earnings are needed to pay this years dividend, lower percentage preferred
Back
Card 4
Front
Based on discounting techniques, used to estimate the value of equity as the present value of future equity returns to the investor
Back
Card 5
Front
Profit available to ordinary shareholders / Number of ordinary shares
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