# Capital Structure and Financial Ratios Financial Gearing (part b)

 View all ACCA Paper F9 lectures >> This ACCA F9 lecture is based on OpenTuition course notes, view or download lecture notes here>>

1. says

Hi John,

I’m bit confused about P/E ratio, in your lecture, p/e=market value per share/earning per share, and earning per share=earnings for ordinary shares/number of ordinary shares. Dec 2012, Q4, a) iii) I calculate that earning per share is 10.1/40=0.2525, so p/e ratio is 4/0.2525=15.84. I cannot understand examiner’s answer, average p/e ratio x earnings, what’s that mean, what this figure tells me? Thanks.

• says

PE = market value / earnings
If you multiply both sides by earnings, you get market value = PE x earnings

The question asks you for a market value and specifically says to use the business sector average PE ratio.

The company is being considered for acquisition, if you were thinking of buying it then this is one way that you might decide how much it was worth paying for the shares.

2. says

hello Sir ,
while calculating interest cover how does interst cover comes out to be 5.45 mine comes out to be 54.54 when i divide 6000 by 110 plz explain may be i am getting confused with zeros

• says

Interest cover is 8.67!!! It is 52,000 / 6,000 (profit before interest divided by interest)

Thats what I do in the lecture – I don’t know why on earth you are dividing 6000 by 110!

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I really cannot imagine why you want to divide 6000 by 110.
The nominal value of one bond is \$100, so the interest on one bond is \$6.
The market value of one bond is \$110.

So the interest yield is 6/110 x 100%

3. says

Is is possible to use open tuition notes and lectures and gain sufficient information to pass F9 exam. Thank you

• says

Yes! There is more than enough in the lectures and Course Notes to be able to pass the exam well.
However the one extra thing that you do need to do is to practice as many questions as possible. My lectures and notes can teach you what you need to know, but the only way that you can get used to the style of the exam and the level of difficulty is to practice questions.
At the very least you must work through all the past exam questions from the ACCA website. Better is to get hold of a Revision/Exam Kit from one of the approved publishers because they have lots of extra questions also.

4. says

Dear John,
Quite frankly i really appreciate for the excellent lectures,, i just needed small clarification,,when calculating the dividend yield,,usually it is based on the share price as at the beginning of the year, however in the calculation you based it on as per end of the year, is it k to base it as per ex div share price even though we are not told exactly that whether it is ex div or not but just as assumption because it is at 31st december?

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Everything is an assumption, and as long as you state your assumption then you will get the marks.

It is best calculated on the share price at the start of the year, but if this is not know then it has to be the share price at the end of the year,

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I appreciate for quick response sir, to be quite honest I have never seen a lecturer who expresses the lectures in very simple and understandable manner, I really adore the way you teach, I gained alot from f5 nd f9, wish u were also teaching other subjects too,, anyways thanks alot

• says

That is very kind of you – thank you

5. says

Nice lecture, thanks! Just one qustion: When calculating P/E, market value per share taken is 83 while in the text book is 0.83. Can you please let me know why that is the case/ Thanks in advance!

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I have taken both the earnings per share and the market value in cents. I assume that your book has taken the both in \$’s. Both give the same answer and it does not matter (as long as you are consistent – i.e. both in cents or both in \$’s)

6. says

Great lecture and straight to the point! what I loved most is the interpretation of the ratios, and that I feel, is what the examiner is particularly looking for in most questions… as they say ‘ you should know what you’re calculating.’ great job Open Tuition.

7. says

Is the list for ratios, on pages 78 – 79, exhaustive for all financial ratios the examiner could ask for? Can he ask for Gross profit margin etc.

8. says

People should work out how to use their computers before asking for things ‘to be fixed ASAP!’ The clue in the fact that there’s nothing wrong with the upload lies in the fact nobody else has had a problem!

9. says

ya tht was sumthin wrong wid my download speed ..! but still its loaded slow as compare to otha subjects lectures ..! may b due to new video format ..! a part from this head off to OT lectures ..! i am lovin it ..! thanks OT

10. says