1. Dividend per share
The dividend per share ratio relates the dividends announced during a period to the number of shares in issue during that period.
Dividends announced during the period
Number of shares in issue
Factors that influence the amount that a company is willing or able to issue in the form of dividends include:
- The profit available for distribution to investors
- The future expenditure commitments of the company
- The expectations of shareholders concerning the level of dividend payment.
- The cash available for dividend distribution
- Dividend payout ratio
The dividend payout ratio measures the proportion of earnings that a company pays out to shareholders in the form of dividends.
Dividends announced during the period x 100
Earnings for the year available for dividends
The earnings available for dividends, in the case of ordinary shareholders, would normally be net profit after interest and taxation and after any preference dividends announced during the year.
- Earnings per share (EPS)
The earnings per share (EPS) relates the earnings generated by the company during the period and available to shareholders to the number of shares in issue. For ordinary shareholders, the amount available will be represented by the net profit after tax (less any preference dividend where applicable).
Earnings available to ordinary shareholders
Number of ordinary shares in issue
Many investment analysts regard the EPS as a fundamental measure of share performance. The trend in earnings per share over time is used to help assess the investment potential of a company’s shares.
- Price/earnings (P/E) ratio
This ratio relates the market value of a share to the earnings per share.
Market value per share
Earnings per share
The ratio is, in essence, a measure of market confidence in the future of a company. The higher the P/E ratio, the greater the confidence in the future earning power of the company and, consequently, the more that investors are prepared to pay in relation to the earnings stream of the company
Price/earnings ratios provide a useful guide to market confidence concerning the future.