Other financial ratios provide additional insights into a company’s performance, profitability, and market valuation beyond liquidity and solvency measures. These ratios help investors assess earnings potential, stock value, and returns on investment, influencing financial decisions. They are crucial in evaluating a company’s attractiveness to shareholders, as they reflect profitability, market perception, and income distribution. Understanding these ratios allows investors to compare companies within industries and make informed investment choices.
Earnings Per Share (EPS)
Net Income / Average Number of Common Shares Outstanding
Represents the portion of a company’s profit allocated to each outstanding share, calculated as net income divided by total shares outstanding.
Price/Earnings (P/E) Ratio
Market Price per Share / Earnings per Share
Compares a company’s stock price to its earnings per share, indicating how much investors are willing to pay for each dollar of earnings.
Dividend Yield Ratio
Dividends per Share / Market Price per Share
Measures the return on investment from dividends by dividing annual dividends per share by the stock price, showing income potential for investors.
Stock Price Return
(Current Market Price – Starting Market Price + Dividends) / Current Market Price
Reflects the percentage change in a stock’s price over a period, indicating the overall return an investor gains from price appreciation.
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