Market Prospect ratios

Market Prospect ratios are commonly used for comparing publicly traded companies’ stock prices with other financial measures such as earnings and dividend rates. Although a wide variety of market value ratios are in use, the most popular include earnings per share, book value per share, and the price-earnings ratio.

Simply put, market prospect ratios helps investors in providing estimations as to what would they receive from their investment. They might receive future dividends, earnings, or just an elevated stock value. These ratios indicate will the stock prices rise or fall based on current earnings and dividend measurements which is really helpful for the investors. For example: a downward trend in earnings per share and dividend yield point to profitability problems and could even raise going concern issues. All of these issues point to a lower stock evaluation.

Mentioned below are some market prospect ratios commonly used by investors.

Earnings Per Share (EPS)

Earning per share (EPS) which is also known as net income per share, is a market prospect ratio that calculates the amount of net income earned per share of stock outstanding. Simply put, this is the amount of money each share of stock would bring in if all of the profits were distributed to the outstanding shares at the end of the year.

The formula to calulate EPS is:

Earnings Per Share = Net Income – preferred dividends / Weighed Average Common Shares Outstanding

Price-to-Earnings Ratio

The price-to-earnings ratio (P/E ratio) is the ratio used for valuation of a company that calculates its current share price relative to its per-share earnings (EPS).

P/E ratios are really helpful tools for investors and analysts to analyse the relative value of a company’s shares in an apples-to-apples comparison. It is also used for comparing the company’s current performance with its historical performance or even to compare aggregate markets against one another or over time.

The formula to calulate P/E ratio is:

P/E Ratio = Market Value per Share / Earnings per Share

Dividend Payout Ratio

The dividend payout ratio is the amount of dividends paid to stockholders relative to the amount of total net income of a company. The amount that is not paid out in dividends to stockholders is held by the company for growth. The amount that is kept by the company is called retained earnings.

This formula is useful for those investors who are willing to invest in a company’s funds and want to know whether to invest in a profitable company that pays out dividends or in a profitable company that has high growth potential. Simply put, this formula takes into consideration steady income versus reinvestment for possible future earnings, assuming the company has a net income

The formulato calculate Dividend Payout Ratios is:

Dividend Payout Ratio = Total Dividends / Net Income

Dividend Yield Ratio

The dividend yield ratio helps to measure the cash flow a company is generating for each rupee invested in an equity position. In there are no capital gains, dividend of the company is considered as the return on investment of a stock.

The formula to calulate P/E ratio is:

Dividend Yield Ratio = Cash Dividends per share/Market Value per share