Ratios

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?

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.

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is low because of investor sentiment that could have driven the share price lower whereas earnings are nearly a year out of date Conversely, if it's a high PE and we're possibly looking at a situation whereby the investor confidence has driven the share price higher and again earnings figure is a year out of date If it were so easy, everyone would be making fortunes by dabbling in investing in shares.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

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. ?

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?

yup I got it now. thank you :)

You're welcome