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Ratio Analysis



Price - The current weekly closing price.

EPS - Earnings per Share

DPS - Dividends per Share

Market Capitalisation - Price x Number of Shares




PE Ratio

Formula = Price / EPS

The PE Ratio is the most popular ratio of all. It shows us the number of times the share price covers the company's earnings. It is useful for comparing companies within the same sector. Usually the lower the PE Ratio the better.

If a company's PE Ratio is unusually lower than that of other company's within the same sector, then it is worthwhile investigating this company further.




Earnings Yield

Formula = (EPS / Price) x 100

Earnings Yield is the company's earnings expressed as a percentage of it's price.



PEG Ratio

Formula = PE Ratio / Earnings Growth

The PEG Ratio is a measure of whether a company's price is over or under valued.

A company's PE Ratio should equal it's earnings growth.


If a company has a PE Ratio of 10 and it's earnings growth is 10% pa, then the company will have a PEG Ratio of 1.
The company's price is considered to be
fair value.

If a company has a PE Ratio of 10 and it's earnings growth is 20% pa, then the company will have a PEG Ratio of 0.5.
The company's price is considered to be under valued.

If a company has a PE Ratio of 20 and it's earnings growth is 10% pa, then the company will have a PEG Ratio of 2.
The company's price is considered to be
over valued.



Price/Sales Ratio

Formula = Price / Revenue per Share

The Price/Sales Ratio is a ratio for valuing a stock relative to its own past performance, other companies or the market itself.

The Price/Sales Ratio can vary substantially across different industries, so it is mainly useful when comparing similar stocks.




Revenue

Revenue is the amount of money that is brought into a company from its business activities. It is the Gross Income figure before the costs are subtracted to determine the Net Income.



EBITDA

EBITDA = Earnings before interest, taxes, depreciation and amortisation.

EBITDA is essentially the Net Income with interest, taxes, depreciation, and amortisation added back to it. It can be used to analyse and compare the profitability between different companies and industries because it eliminates the effects of financing and accounting decisions.



Dividend Yield

Formula = (DPS / Price) x 100

Dividend Yield is the company's dividend expressed as a percentage of it's share price. It is useful for comparing shares to other investments.



Dividend Ratio

Formula = (DPS / EPS) x 100

The Dividend Ratio tells us the percentage of earnings that are paid out to shareholder's as dividends.



Dividend Cover

Formula = EPS / DPS

Dividend Cover tells us how many times the company's dividend (DPS)is covered by it's earnings (EPS). Investors generally look for companies that have a Dividend Cover of > 1.2. This means that if the company's earnings happen to decrease a bit, the company can still afford to pay the same dividend.



Ex-Dividend Date

A stock trades ex-dividend on or after the ex-dividend date. At this point, the person who owns the security on the ex-dividend date will be awarded the payment, regardless of who currently holds the stock. After the ex-date has been declared, the stock will usually drop in price by the amount of the expected dividend.



Book Value (Share Holder's Equity)

Formula = (Total Assets - Total Liabilities) / No. of Shares

Book Value is used to measure a company's debt level. If all the assets of a company were sold and all of the debts paid off with the proceeds of the sale, Book Value is the amount that is left over. It is said that Book Value is the true net worth of a company.

Book Value is also called Shareholder's Equity.



Price / Book Value

Formula = Price / Book Value

Price / Book Value is another way of trying to determine if a company's price is over or under valued.

Generally, if a company has a Price / Book Value of < 1, it is considered to be under valued.



Return on Equity (ROE)

Formula = (EPS / Book Value) x 100

Return on Equity tells us the percentage of profits made by a company compared to it's true net worth. Generally, when investors are looking for a growth company, they look for companies with a high ROE.