Stockholder Ratios
Stockholder Ratios
Stockholders are primarily interested in two things:
(1) The creation of value, and
(2) The distribution of value.
Stockholder ratios such as earnings per share and return on common equity provide information about the creation of value for shareholders. The value is distributed to shareholders in one of two ways. Either the corporation issues dividends or repurchases stock. The remainder of the stockholder ratios—dividend yield, dividend payout, stock repurchase payout, and total payout—address this distribution of value.
• Earnings per Share (EPS)
Earnings per share ratio, or EPS, measure the income available for common stockholders on a per-share basis. EPS is one item that is examined by nearly all statement users. Conceptually, it is very simple: net income less preferred dividends divided by the average number of common shares outstanding. (Remember that treasury shares are not considered to be outstanding.) Preferred dividends are subtracted from net income because those payments are a return to holders of shares other than common stock. In fact, the numerator, net income less preferred dividends, is often called income available for common shareholders.
• Return on Common Equity
The return on common equity ratio is basically the same as the return on equity discussed in the profitability ratio section. We place this ratio here because it is arguably the most important ratio for investors. Plus, it gives us the opportunity to modify the ratio slightly by calculating the return on common equity rather than equity. To calculate common equity you subtract any contributed capital from preferred stock from total stockholders’ equity.
• Dividend Yield Ratio The dividend yield ratio measures the rate at which dividends provide a return to stockholders, by comparing dividends with the market price of a share of stock. This ratio is conceptually similar to an interest rate on debt where the dividend is like the interest
Stockholders are primarily interested in two things:
(1) The creation of value, and
(2) The distribution of value.
Stockholder ratios such as earnings per share and return on common equity provide information about the creation of value for shareholders. The value is distributed to shareholders in one of two ways. Either the corporation issues dividends or repurchases stock. The remainder of the stockholder ratios—dividend yield, dividend payout, stock repurchase payout, and total payout—address this distribution of value.
• Earnings per Share (EPS)
Earnings per share ratio, or EPS, measure the income available for common stockholders on a per-share basis. EPS is one item that is examined by nearly all statement users. Conceptually, it is very simple: net income less preferred dividends divided by the average number of common shares outstanding. (Remember that treasury shares are not considered to be outstanding.) Preferred dividends are subtracted from net income because those payments are a return to holders of shares other than common stock. In fact, the numerator, net income less preferred dividends, is often called income available for common shareholders.
• Return on Common Equity
The return on common equity ratio is basically the same as the return on equity discussed in the profitability ratio section. We place this ratio here because it is arguably the most important ratio for investors. Plus, it gives us the opportunity to modify the ratio slightly by calculating the return on common equity rather than equity. To calculate common equity you subtract any contributed capital from preferred stock from total stockholders’ equity.
• Dividend Yield Ratio The dividend yield ratio measures the rate at which dividends provide a return to stockholders, by comparing dividends with the market price of a share of stock. This ratio is conceptually similar to an interest rate on debt where the dividend is like the interest
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