Dividend Yield Ratio

The dividend yield ratio equals the amount of cash dividends

per share during the most recent, or trailing, 12 months
divided by the current market price of a stock share.

amount of cash dividends

Dividend Yield Ratio= _per share during the most recent, or trailing, 12 months________
current market price of a stock share

Significance: measure of cash income from a share of stock based on its current market price.
The annual return on an investment in stock shares includes :
1. cash dividends received during the period
2. the gain or loss in market value of the stock shares over the period.

Price/Earnings Ratio

The market price of stock shares of a public business is divided by its most recent annual EPS to
determine the price/earnings ratio:

Current market price of stock share

_______________________________________________ = price/earnings ratio:

Earnings per share (either basic or diluted EPS)

Asset Turnover Ratio

The asset turnover ratio is a test of how well a business is
using its assets overall. This ratio is computed by dividing
annual sales revenue by total assets (see Figures 4.1 and 4.2
for data):
$39,661,250 annual sales revenue
_______________________________ 1.5 times
$26,814,579 total assets
This ratio reveals that the business made $1.50 in sales for
every $1.00 of total assets. Conversely, the business needed
$1.00 of assets to make $1.50 of sales during the year. The
ratio tells us that business is relatively asset heavy. The asset
turnover ratio is compared with the averages for the industry
and with previous years of the business.

ASSETS
Q1. What amount of total assets would you estimate that the business used in making
annual sales of $52 million?
Ans: Calculate from Asset t/o ratio
Q2. The second question is this: Where did the business get the $26 million invested in its assets
Ans: The money for investing in assets comes from two different sources—
a. liabilities and
b. owners’ equity.
This point is summarized in the well-known accounting equation:

Assets liabilities owners’ equity

Return on Assets

Dividing EBIT by total assets gives the rate of return on assets (ROA) earned by the
business.

EBIT
Return on Assets = ________
total assets

Adequacy is checked with reference to : Annual Interest rate on debt.

The average annual interest rate on its debt is 8.0 percent. Relative to this annual
interest rate the company’s 15.0 percent ROA is more than adequate. Indeed,

the favorable spread between these two rates works to the advantage of the business owners.

Note: Amounts are in in millions of dollars.

Sales revenue $52.0
Cost-of-goods-sold expense $31.2
Gross margin $20.8
Operating expenses $16.9
Earnings before interest and income tax (EBIT) $ 3.9