An Introduction to Ratio Analysis - Financial Analysis Tutorial and Concepts

Ratio Analysis
Ratio Analysis Home
Liquidity Ratios | Profitability Ratios | Asset Management Ratios | Debt Management Ratios | Dividend/Market Value Ratios

Ratios of Dividend/Market Value:

The article continues below the ads:

Definitions

An Asset is any 'thing' a business can own. Buildings, equipment, and vehicles are examples of assets that can be depreciated, while cash, bonds, and inventories are assets that are not depreciated.
Amortization is essentially depreciation for intangible assets (like oil wells, goodwill, etc.)
Depreciation is the reduction in value of an asset over the course of its useful life. It can be calculated in several ways.
Common Dividends are dividend payments to holders of common stock to distribute earnings of the company. If dividends are paid, they can be found on the statement of cash flows as a financing activity.
Dividends are payments to stock holders of various classes of stock to distribute earnings of the company. If dividends are paid, they can be found on the statement of cash flows as a financing activity.
Net Income is the earnings of a company after satisfying all obligations. It can be found at the end of the income statement.
Total Assets is the sum of current assets (like cash), fixed assets (such as buildings), and other assets (i.e., goodwill). It can be found on the balance sheet as "Total Assets."
Total Debt is the combined amount of current liabilities and long-term liabilities. It can be found on the balance sheet as "Total Liabilities."

The Dividend Payout Ratio expresses dividend payments on common stock as a percentage of earnings.
Given the common dividend payments from a company's statement of cash flows and net income from the income statement:
Dividend Payout Ratio = (Common Dividends) / (Net Income)
Generally, the higher the ratio, the greater the more of earnings are paid to stockholders instead of retained by the company.

The Dividend Yield Ratio expresses the dividend payment per share as a percentage of share price.
Given the dividends paid from the financing activities section of the statement of cash flows, the number of shares outstanding, and the market price per share of stock:
Dividend Yield Ratio = (Dividend per share) / (Price per share)
Generally, the higher the ratio, the more directly earnings are distributed to owners.

The P/E Ratio relates market price to earnings per share.
Given the market price per share, net income from a company's income statement and the number of shares outstanding:
Earnings Per Share = (Net Income) / (Number of shares outstanding)

P/E Ratio = (Market price per share) / (Earnings per share)

Generally, the higher the P/E multiplier, the more the market rewards earnings by the company in terms of share price.