The financial statement ratios help managers in making the better business decisions. The research focuses on the dividend yield ratio and dividend cover financial statement ratios. The research includes focusing on the capital gear ratio and the price to earnings ratio. The four financial statement ratios indicate investing in the company the right decision.
Dividend yield
Table 1 shows the dividend yield indicates the relationship between the dividend amount and the company’s stock market price. A higher dividend yield would shows the company performed well in the accounting period under study (West 2003). The 2006 dividend yield generates 2 percent dividend yield. The calculation means that the company’s dividend per share is only 2 percent of the company’s stock market price. Further, the 2007 dividend yield generates 3 percent dividend yield. The computation shows that the company’s dividend per share is only 3 percent of the company’s stock market price. The 2008 dividend yield generates 4 percent dividend yield. The computation shows that the company’s dividend per share is only 4 percent of the company’s stock market price. The 2009 dividend yield generates a similar 4 percent dividend yield. The calculation indicates that the company’s dividend per share is only 4 percent of the company’s stock market price. The 2010 dividend yield generates higher 6 percent dividend yield. The calculation proves that the company’s dividend per share is only 6 percent of the company’s stock market price (Sollenberger 2008). The investors will receive dividends from the investments.
Dvidend cover
The dividend cover shows the relationship between the difference between the profit after deducting the corresponding tax expense and the company’s ordinary dividend received. A higher dividend cover would indicate the company performed better in the accounting period under study. The 2006 dividend cover generates 8.82 percent dividend cover. The calculation means that the company’s difference between the company’s profit after tax and preference dividend amount is only 8.82 percent of the company’s ordinary dividend (Gibson 2010). The 2007 dividend cover generates a lower 8.37 percent dividend cover. The computation means that the company’s difference between the company’s profit after tax and preference dividend amount is lower at only 8.37 percent of the company’s ordinary dividend. The 2008 dividend cover generates a higher 8.96 percent dividend cover. The calculation means that the company’s difference between the company’s profit after tax and preference dividend amount is higher at 8.96 percent of the company’s ordinary dividend. The 2009 dividend cover generates 5.04 percent dividend cover. The computation indicates that the company’s difference between the company’s profit after tax and preference dividend amount had dropped to only 5.04 percent of the company’s ordinary dividend. The 2010 dividend cover generates a higher 6.86 percent dividend cover. The mathematical analysis indicates the company’s difference between the company’s profit after tax and preference dividend amount is higher at 6.86 percent of the company’s ordinary dividend.
Capital gearing
The capital gearing ratio shows the relationship between the total of the preference shares and the company’s long term loans. A capital gearing ratio of 1.0 is the best possible outcome of the company. A capital gearing ratio of more than 1.0 is less favourable compared to a gearing ratio of 1.0. Likewise, a capital gearing ratio of less than 1.0 is less favourable compared to a gearing ratio of 1.0 (Gitman 2008). The 2006 capital gearing ratio is 94 percent. This ratio is less favourable compared to the 1.0 optimum capital gearing ratio. The 2006 capital gearing ratio is 94 percent. This ratio is less favourable compared to the 1.0 optimum capital gearing ratio. The 2007 capital gearing ratio is higher at 1.53. This ratio is less favourable compared to the 1.0 optimum capital gearing ratio. The 2008 capital gearing ratio is 3.18 percent. This ratio is less favourable when compared to the 1.0 optimum capital gearing ratio. The 2009 capital gearing ratio is 2.93 percent. This ratio is less favourable compared to the 1.0 optimum capital gearing ratio. The 2006 capital gearing ratio shows a 2.24 percent result. This ratio is less favourable when compared to the 1.0 optimum capital gearing ratio. A higher than 1.0 gearing ratio translates to higher gearing risks. Likewise, there are opportunity costs from below 1.0 capital gearing ratio. In addition, the tax creates impacts by reducing the company’s debt funding costs (Epstein 2008).
Price to earnings ratio
The price to earnings ratio shows the relationship between the market price per share of stock and the company’s earnings per share amount. A higher price to earnings ratio indicates the company performed better in the accounting period under study (Hilton 2011). The 2006 price to earnings ratio generates 18.60. The calculation means that the company’s market price per share is 18.60 percent of the company’s earnings per share amount. The 2007 price to earnings ratio generates a lower 10.99 result. The calculation means that the company’s market price per share is 10.99 percent of the company’s earnings per share amount. The 2008 price to earnings ratio generates a lower 9.01 amount. The calculation means that the company’s market price per share is 9.01 percent of the company’s earnings per share amount. The 2009 price to earnings ratio generates a higher 17.61 figure. The calculation means that the company’s market price per share is 17.61 percent of the company’s earnings per share amount. The 2010 price to earnings ratio generates a lower 7.91 result. The calculation means that the company’s market price per share is 7.91 percent of the company’s earnings per share amount (Horgren 2011). Based on the above discussion, the financial statement ratios guide managers in decision-making activities. The dividend yield and dividend cover financial statement ratios show that it is profitable to invest in the company’s stocks. The capital gear ratio and the price to earnings ratio indicate the financial statement ratios persuade the prospective investors to invest in the company’s stocks. Indeed, the four financial statement ratios prove investing in the company will generate revenues, profits, and dividends for the investors.
References
Epstein, L. (2008) Reading Financial Reports. London, C Wiley & Sons Press.
Gibson, C. (2010) Financial Statement Analysis. London, Cengage Press.
Gitman, L. (2008) Principles of Managerial Finance. London, Addison Press.
Hilton, R. (2010) Managerial Accounting. London: McGraw-Hill.
Horgren, C. (2011) Managerial Accounting: Creating Value in a Dynamic Business. London, Prentice Hall.
Sollenberger, H. (2008) Managerial Accounting. London, South West Press.
West, B. (2003) Professionalism and Accounting Rules. London, Routledge Press.