Financial analysis

Introduction

The user could want the ratio anlalysis to make an informed decision based on the profitability, liquidity, gearing and investment returns of an organisation.

For Example:

• Profitability
• Liquidity
• Gearing
• Returns on investment

Take note that most measures will not mean much on their own, and can only be useful when compared with something. This comparison could be against previous years of the same company, with those of similar company or against industry averages.

Comparison Example:

Common Ratios

• Profitability Ratios

• Liquidity Ratios

• Gearing Ratios

• Investor Ratios

1. Profit Earnings Ratio (P/E Ratio)

2. Earnings Per Share (EPS) Ratio

EPS=Earnings for distribution to equity/Number of shares in issue and ranking for dividend

Things to note:

• A higher earnings per share indicates profitability on per-share basis, suggesting the organisation is performing well financially.
• It signals efficient management and potential for dividends or stock price appreciation, meaning the investor here can benefit from either higher divideds pay out or sell the shares owned at a much higher price.
• Stagnent EPS may signal underlying issues like...
• A significant difference between basic EPS and diluted EPS can indicate pontetial risks that the comapny's profitability per share may decline if dilutive securities (e.g convertible bonds, stock options or warrants) are converted into shares.

3. Dividend Yield