Investor analysis

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Dividend Cover

Dividend Yield

Price/earnings ratio

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Note: EPS can also be calculated but that is dealt with in a previous chapter because it is a ratio with its own accounting standard.

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Investor ratios

Morgan Co is a listed company and has 50c equity share capital of $20m in issue.

The company paid a dividend per share of 10.5c in its most recent financial year and the share price at the reporting date was $1.20. The additional financial information is also available to investors:

Statement of profit and loss
	20X9 $’000s
Profit before income taxes	28,350
Income tax expense	(4,600)
Profit	22,680

Calculate each of the following investor ratios for Morgan Co:

Dividend cover
Dividend yield
P/E ratio
EPS

EPS	56.7c	= Earnings/No. shares in issue = 22,680/40,000

Dividend cover	5.4 times	= EPS/DPS = 56.6c/10.5c

Dividend yield	8.75%	= DPS/Price per share = 10.5c/$1.20 x 100%

P/E ratio	2.12	= Share price/EPS = $1.20/56.6c

NOTE: No. shares in issue = $20m/50c = 40m shares

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