Investor Ratio Analysis
Investor Ratios
There are various ratios that are designed to help investors who hold shares in a company to assess the returns on their investment. These are:
Dividend per Share The dividend per share ratio relates the dividends pertaining to an accounting period to the amount of shares in issue during the period.
The ratio is given as follows:
Dividend per share
=
Dividends pertaining to a period Number of shares in issue
The ratio provides an indication of the cash return a shareholder receives from holding shares in a company. Although it is a useful measure, it must be remembered that the dividend received will usually only represent a partial measure of the return to an investor. Dividends are usually only a portion of the earnings generated by the firm and available to shareholders. A business may decide to plough back some of its earnings back into the business in order to achieve future growth. These ploughed back profits belong to the shareholders and should in principle increase the value of the shares. Thus w h e n assessing the total return to an investor we must look at both the dividends received and any movement in the share price.
The dividend per share for Alexis Ltd is given as follows:
Page 1 of 5
Dividends per share can vary considerably between companies. A number of factors will influence the amount that a company is willing or able to issue in the form of dividends to shareholders. These factors include:
• • • •
The profit available for distribution to investors The future expenditure commitments of the company The expectations of shareholders concerning the level of dividend payment The cash available for dividend distribution
Comparing the dividends per share between companies is not always useful as there may be differences between the nominal value of the shares issued. It may be more useful to monitor the trend in dividends per share over a period of time.
Dividend Yield Ratio This ratio
There are various ratios that are designed to help investors who hold shares in a company to assess the returns on their investment. These are:
Dividend per Share The dividend per share ratio relates the dividends pertaining to an accounting period to the amount of shares in issue during the period.
The ratio is given as follows:
Dividend per share
=
Dividends pertaining to a period Number of shares in issue
The ratio provides an indication of the cash return a shareholder receives from holding shares in a company. Although it is a useful measure, it must be remembered that the dividend received will usually only represent a partial measure of the return to an investor. Dividends are usually only a portion of the earnings generated by the firm and available to shareholders. A business may decide to plough back some of its earnings back into the business in order to achieve future growth. These ploughed back profits belong to the shareholders and should in principle increase the value of the shares. Thus w h e n assessing the total return to an investor we must look at both the dividends received and any movement in the share price.
The dividend per share for Alexis Ltd is given as follows:
Page 1 of 5
Dividends per share can vary considerably between companies. A number of factors will influence the amount that a company is willing or able to issue in the form of dividends to shareholders. These factors include:
• • • •
The profit available for distribution to investors The future expenditure commitments of the company The expectations of shareholders concerning the level of dividend payment The cash available for dividend distribution
Comparing the dividends per share between companies is not always useful as there may be differences between the nominal value of the shares issued. It may be more useful to monitor the trend in dividends per share over a period of time.
Dividend Yield Ratio This ratio