Price Earnings Ratio

Price earnings ratio (also known as price to earnings ratio or P/E ratio) is the ratio of market value of the company’s ordinary (common) share to earnings per share.  It shows the number of times the market price of a company’s share is higher than its earnings per share for the last twelve months. It is therefore also termed as … Read more

Earnings Yield Ratio

Earnings yield ratio is an effective restatement of price earnings ratio. It shows earnings per share as a percentage of the market value of the ordinary share. It is arrived at by dividing the earnings per share (EPS) for the last 12 months by the current market value of the share and multiplying the result by 100. … Read more

Dividend Payout Ratio

Dividend payout ratio shows what portion of available profits is distributed away as dividend. Hence, it also indicates what portion is being reinvested in the business. The dividend payout ratio tells us what percentage of the firm’s earnings are being paid to Equity Shareholders in the form of dividends. Formula Dividend payout ratio is the ratio … Read more

Dividend Coverage Ratio

Dividend coverage ratio shows the number of times the dividend is covered by available profit and is calculated separately for each class of shares. Formula For preference shares: and for ordinary (common) shares: Example Profit before tax: $480,000 Corporation tax rate: 50% Dividend to preference shareholders: $15,000 Dividend to ordinary shareholders: $25,000 Calculate dividend coverage … Read more

Dividend Yield Ratio

Dividend yield ratio shows the percentage return to the investor on the market value of the preference or ordinary share he owns. Like dividend coverage ratio, this ratio is also calculated separately for each class of shares. Formula For preference shares: and for ordinary shares: Dividend is very often a major part of all that … Read more

Accounting Equation

The properties owned by a business are called assets and the rights or claims to the properties are referred to as equities. For every business, the sum of the rights to the properties is equal to the sum of properties owned. The relationship between the two may be expressed in the form of an equation. … Read more

Realization Principle of Accounting

Definition The realization principle of accounting revolves around determining the point in time when revenues are earned. The concept followed by the realization principle is that revenue is realized when the goods and services produced by a business are transferred to a customer, either for cash, an asset, or a promise to pay cash or … Read more