(i) Earnings per share =Profit after tax / Number of shares=600,000/5,000,000=12C
P/E ratio =Market price of share/EPS=80/12=6.7
The P/E ratio is the most important yardstick for assessing the relative worth of a share. It
reflects the market’s appraisal of the share’s future prospects.
(ii)Dividend yield =Dividend per share/Market price per share=3/80= 3.75 %
The dividend yield ratio indicates the return that investors are obtaining on their investment in
the form of dividends. An investor interested in dividend income and not capital gains will look
for a high dividend yield.
(iii) Dividend cover =Earnings per share/Dividend per share=12/3= 4
The dividend cover ratio indicates the number of times the actual dividend can be paid out of
current profits. It indicates how much of a business’ profits are being distributed to
shareholders and how much is being retained to finance future expansion.
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