Investors' ratios: dividend yield, earnings per share, dividend cover, price earnings, interest cover
Investors use five key ratios to judge whether a company is worth buying into. These ratios measure returns, profitability per share, and how safely a company can pay its debts and dividends.
Formula
Earnings Per Share = Profit after Tax ÷ Number of Ordinary Shares
Real World
In 2023, Tesco's dividend yield of around 4% attracted income-focused investors, while its price-earnings ratio of roughly 12 suggested the market viewed it as a stable but slower-growth stock compared to tech firms.
Exam Focus
Learn all five formulae — the exam regularly asks you to calculate two or three and then advise an investor, so show your workings clearly.
Essay Framework
Use PEEL to structure every paragraph. Tap each step for guidance and an example.
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