Growth and valuation ratio, Finance Basics

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Growth and Valuation Ratio

This ratio indicates the growth potential of the firm in addition to determining the value of the firm and investment made via various investors.  They contains the following:

a) Earnings per share EPS  = Earnings to Ordinary shareholders/No. of ordinary shares

These ratios signify earnings power of the firm that is how much earnings or profits are attributed to every share held by an investor.  The higher the ratio the improved the firm.

b) Earnings yield (EY) = (Earnings per share/ Market price per share) x 100

  1. The market price per share or MPS is the price at that new shares can be bought from the stock market.
  2. These ratios hence signify the returns or earnings for every single shilling invested in the firm.

c) Dividends per share (DPS) =      Dividend paid /No. of ordinary shares

This signifies the cash dividend received for every share held by an investor. Whether all the earnings attributable to ordinary shareholders such were paid out as dividend, then EPS = DPS.

d) Dividend Yield (DY) =  (Dividend per share/ Market price per share) x 100

Or Dividend paid /Market value of equity

    Whereas market value of equity = No. of shares x MPS

  1. This ratio signifies the cash dividend returns for every one shilling invested in the firm.

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