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Ratios

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Ratios

  • This topic has 7 replies, 2 voices, and was last updated 9 years ago by MikeLittle.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • November 6, 2015 at 1:50 am #280719
    sasha
    Member
    • Topics: 99
    • Replies: 141
    • ☆☆☆

    sir what is the difference between return on shareholders’ fund and return on equity?

    November 6, 2015 at 3:06 am #280721
    sasha
    Member
    • Topics: 99
    • Replies: 141
    • ☆☆☆

    sir while going through dividend cover formula, I came across to two different formula.. 1. earnings per share/ dividend per share . 2. dividend per share/earnings per share. which one of them is correct?

    November 6, 2015 at 5:29 am #280737
    sasha
    Member
    • Topics: 99
    • Replies: 141
    • ☆☆☆

    3. In P/E ratio which one is better, a company with low P/E or a company with high P/E? and why? when i went through book I saw both low and high P/E might be good depending upon companies but i could not get the clear idea on it.

    November 6, 2015 at 7:42 am #280756
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    earnings per share/ dividend per share is correct

    “In P/E ratio which one is better, a company with low P/E or a company with high P/E?” – it all depends on the situation. If we’re approaching a year end and new results to be published, a low PE may suggests that the market price is low because of investor sentiment that could have driven the share price lower whereas earnings are nearly a year out of date

    Conversely, if it’s a high PE and we’re possibly looking at a situation whereby the investor confidence has driven the share price higher and again earnings figure is a year out of date

    If it were so easy, everyone would be making fortunes by dabbling in investing in shares. But, sadly, it’s not so straight forward

    Shareholders’ funds may include preference shares and particularly non-redeemable preference shares whereas equity is just equity shares

    November 6, 2015 at 8:29 am #280777
    sasha
    Member
    • Topics: 99
    • Replies: 141
    • ☆☆☆

    sorry sir I did not get your explanation on P/E . 🙁 You mean to say at the year end the market prices decreases which results in low P/E?

    another thing I am confused on P/E is that higher EPS results low P/E and lower EPS results high P/E. so why do investor would be interested in company which has low earnings ? wouldn’t it better and less risky if investor buy stock from where there is high EPS where they have to pay just small amount for each dollar earning. ?

    November 6, 2015 at 3:18 pm #280823
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    Say PE Ratio is 10 just after the year end $2 share price, 20c earnings

    What changes in the next 12 months? Certainly not the earnings – not until next year. But the market price does change. If investors are optimistic the price will go up so PE goes up. If they’re pessimistic, the market price falls so PE falls

    Is that better?

    November 7, 2015 at 1:01 am #280937
    sasha
    Member
    • Topics: 99
    • Replies: 141
    • ☆☆☆

    yup I got it now. thank you 🙂

    November 7, 2015 at 8:44 am #280963
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    You’re welcome

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