C1 Definition and Purpose of Shareholder Ratios
Dividend per share gives a value of the dividend payments distributed per shares held by shareholders in each financial year. This ratio can help investors make a judgement on the return on their investment. It is calculated using the following formula;
Total dividends paid / total number of shares held by shareholders
Dividend yield gives a value of dividend payments distributed to shareholders in comparison to share price. It is calculated using the following formula;
Dividend amount per share / share price
Earnings per share compares the value of a company’s net profit to the number of shares issued. It is calculated using the following formula;
Net profit / total number of shares held by shareholders
The dividend cover ratio measures how many times a company can pay its dividends to shareholders. It is calculated using the following formula;
Net profit / dividend amount declared
The price/earnings ratio compares the price per share to the earnings per share. It helps investors judge the likely return they will receive for their investments. It is calculated using the following formula;
Market price per share / earnings per share
Gearing ratio compares the owners equity to long term borrowing by measuring the proportion of invested capital made up of borrowing. It is calculated using the following formula;
(Long-term liabilities / capital employed) x 100
