Lesson 11 definitation of terms in relation to stocks
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This document defines key terms related to stocks such as stocks, dividends, dividend per share, stock market, market value, stock yield ratio, and par value. It provides examples of how to calculate dividend per share and stock yield ratio. Dividend per share is calculated by dividing the total dividend by total shares. Stock yield ratio is calculated by dividing the dividend per share by the market value per share. The document explains that the stock yield ratio can be used to compare investments and determine which provides a higher return per peso invested. It concludes with practice problems for readers to solve involving calculating dividend per share and stock yield ratio.
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Lesson 11 definitation of terms in relation to stocks
This document defines key terms related to stocks such as stocks, dividends, dividend per share, stock market, market value, stock yield ratio, and par value. It provides examples of calculating dividend per share from total dividend and number of shares, and calculating stock yield ratio by dividing dividend per share by market value. The document shows that Corporation A has a higher stock yield ratio than Corporation B, meaning each peso invested would earn more in Corporation A. It concludes by explaining the stock yield ratio can be used to compare investments.
Chapter 16
This document provides an overview of payout policy, including dividends and stock repurchases. It discusses the different theories around whether dividend policy impacts firm value, including the views that it is irrelevant according to M&M theory, increases value according to the clientele and signaling effects, and decreases value due to tax considerations. It also outlines the different dividend payment processes and "Lintner's stylized facts" about manager preferences to smooth dividends and avoid cuts.
Bonus shares vs stock splits
Bonus shares and stock splits both increase the number of a company's shares, but they differ in their purpose and impact on share price. Bonus shares are issued using a company's reserves and do not change the total market capitalization, causing the individual share price to decrease proportionally. Stock splits reduce the market price of each share to increase liquidity and allow smaller investors to purchase shares, also without changing the total market capitalization. Both actions are generally viewed positively by the market as indicators of a company's growth and performance.
Earning Per Share
Earnings per share (EPS) is used by investors and analysts to assess a company's performance over time and compare it to other companies. Basic EPS is calculated by taking net profit minus preferred dividends and dividing it by the number of common shares outstanding. Diluted EPS accounts for all convertible securities like options, warrants, and preferred shares that could be converted to common stock, which would result in more shares outstanding and a lower EPS. Calculating diluted EPS involves determining the equivalent number of common shares those convertible securities represent and adjusting the net profit and share count accordingly.
Exchange ratio and synergy
Synergy is the concept that the combined value and performance of two companies will be greater than the sum of the separate individual parts. Synergy is often a driving force behind mergers and acquisitions and can result in increased revenues or lower expenses. The exchange ratio measures the number of shares the acquiring company issues for each individual share of the target firm in M&A deals involving stock. There are several methods for calculating the exchange ratio, including using earnings per share, market price per share, price-earnings ratio, and net asset value. The maximum and minimum exchange ratios are calculated based on maintaining pre-merger EPS and MPS levels after adjusting for synergies.
Divident policy
This document discusses dividend policy and its impact on firm value. It covers 5 sections: 1) Models relating investment and dividend decisions, including the Walter and Gordon models. 2) The traditional view that the market values dividends more than retained earnings. 3) The Miller-Modigliani position that dividend policy does not impact value under certain assumptions. 4) The radical view that dividends should be minimized due to tax advantages of capital gains. 5) An overall picture of two broad schools of thought on the relationship between dividends and share value.
Understanding Earnings per Share
One of the most popular questions when it comes to buying a car is 'Kitna deti hai’? (What is the mileage of the car?)
Fuel efficiency of the car is calculated as the distance travelled per unit volume of fuel consumed. During heavy traffic the mileage of your car will be less as compared to empty roads. It all depends on the distance covered per litre of fuel consumed. Therefore, the distance travelled is a major factor defining the fuel efficiency of a car.
Better fuel efficiency would mean higher savings while poor fuel efficiency would mean higher expenses.
Here's a lesson on ‘Earnings Per Share’ that draws a similar analogy to fuel efficiency
Dividend theories
This document discusses theories related to corporate dividend decisions and their impact on firm value. It outlines two broad categories of theories: theories of irrelevance, which argue dividend decisions do not affect firm value, and theories of relevance, which argue they do. Key theories discussed include the residual approach, Modigliani-Miller approach, Walter's model, and Gordon's model. The document analyzes the assumptions and conclusions of each theory regarding how different dividend policies impact firm value under varying conditions.
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Lesson 11 definitation of terms in relation to stocks
This document defines key terms related to stocks such as stocks, dividends, dividend per share, stock market, market value, stock yield ratio, and par value. It provides examples of calculating dividend per share from total dividend and number of shares, and calculating stock yield ratio by dividing dividend per share by market value. The document shows that Corporation A has a higher stock yield ratio than Corporation B, meaning each peso invested would earn more in Corporation A. It concludes by explaining the stock yield ratio can be used to compare investments.
Chapter 16
This document provides an overview of payout policy, including dividends and stock repurchases. It discusses the different theories around whether dividend policy impacts firm value, including the views that it is irrelevant according to M&M theory, increases value according to the clientele and signaling effects, and decreases value due to tax considerations. It also outlines the different dividend payment processes and "Lintner's stylized facts" about manager preferences to smooth dividends and avoid cuts.
Bonus shares vs stock splits
Bonus shares and stock splits both increase the number of a company's shares, but they differ in their purpose and impact on share price. Bonus shares are issued using a company's reserves and do not change the total market capitalization, causing the individual share price to decrease proportionally. Stock splits reduce the market price of each share to increase liquidity and allow smaller investors to purchase shares, also without changing the total market capitalization. Both actions are generally viewed positively by the market as indicators of a company's growth and performance.
Earning Per Share
Earnings per share (EPS) is used by investors and analysts to assess a company's performance over time and compare it to other companies. Basic EPS is calculated by taking net profit minus preferred dividends and dividing it by the number of common shares outstanding. Diluted EPS accounts for all convertible securities like options, warrants, and preferred shares that could be converted to common stock, which would result in more shares outstanding and a lower EPS. Calculating diluted EPS involves determining the equivalent number of common shares those convertible securities represent and adjusting the net profit and share count accordingly.
Exchange ratio and synergy
Synergy is the concept that the combined value and performance of two companies will be greater than the sum of the separate individual parts. Synergy is often a driving force behind mergers and acquisitions and can result in increased revenues or lower expenses. The exchange ratio measures the number of shares the acquiring company issues for each individual share of the target firm in M&A deals involving stock. There are several methods for calculating the exchange ratio, including using earnings per share, market price per share, price-earnings ratio, and net asset value. The maximum and minimum exchange ratios are calculated based on maintaining pre-merger EPS and MPS levels after adjusting for synergies.
Divident policy
This document discusses dividend policy and its impact on firm value. It covers 5 sections: 1) Models relating investment and dividend decisions, including the Walter and Gordon models. 2) The traditional view that the market values dividends more than retained earnings. 3) The Miller-Modigliani position that dividend policy does not impact value under certain assumptions. 4) The radical view that dividends should be minimized due to tax advantages of capital gains. 5) An overall picture of two broad schools of thought on the relationship between dividends and share value.
Understanding Earnings per Share
One of the most popular questions when it comes to buying a car is 'Kitna deti hai’? (What is the mileage of the car?)
Fuel efficiency of the car is calculated as the distance travelled per unit volume of fuel consumed. During heavy traffic the mileage of your car will be less as compared to empty roads. It all depends on the distance covered per litre of fuel consumed. Therefore, the distance travelled is a major factor defining the fuel efficiency of a car.
Better fuel efficiency would mean higher savings while poor fuel efficiency would mean higher expenses.
Here's a lesson on ‘Earnings Per Share’ that draws a similar analogy to fuel efficiency
Dividend theories
This document discusses theories related to corporate dividend decisions and their impact on firm value. It outlines two broad categories of theories: theories of irrelevance, which argue dividend decisions do not affect firm value, and theories of relevance, which argue they do. Key theories discussed include the residual approach, Modigliani-Miller approach, Walter's model, and Gordon's model. The document analyzes the assumptions and conclusions of each theory regarding how different dividend policies impact firm value under varying conditions.
Finance.presentation
This document discusses stock splits, reverse stock splits, and stock dividends. A stock split increases the number of shares by issuing more shares to existing shareholders, keeping the total value the same. It makes the stock more affordable. A reverse split decreases the number of shares to increase the stock price and avoid delisting. A stock dividend issues more shares to shareholders instead of a cash dividend to retain capital for reinvestment.
Dividend Yield Ratio
Dividend yield is a ratio that indicates the percentage return an investor can expect to receive from dividends on their investment based on the current market share price. It is calculated by dividing the annual dividend per share by the current market price per share. While some investors prioritize high dividend yields for income, companies with high yields often have poor growth prospects and do not reinvest enough earnings back into the business. In the long run, capital appreciation from investing in high growth companies that reinvest earnings can provide both higher overall returns and increasing future dividends compared to focusing solely on current dividend yield. Investors must consider the tradeoff between immediate dividend income versus future capital growth and dividend potential.
Lintner and mm dividend models
The document summarizes the Lintner and Modigliani-Miller (MM) dividend models.
The Lintner model states that companies set long-run dividend to earnings ratios based on available investment opportunities. Dividend policy does not change until new earnings levels are seen as sustainable.
The MM hypothesis argues that dividend policy does not affect share prices or firm value. What matters is the investment policy that increases earnings. Investors are indifferent between dividends and retained earnings.
An example shows that under the MM assumptions, the value of a firm remains the same whether dividends are paid or not, proving shareholders' indifference between retention and dividends. However, the MM assumptions are unrealistic and
Types of Dividend
Let's today to know something about Dividend...... A dividend is an extra income to dividend holder which totally tax-free in hands of Receiver which is considered the source of income.
Dividend policy
This document discusses dividend policy and the theories around it. It outlines two main theories - the dividend irrelevance theory proposed by Miller and Modigliani, which states that dividend payouts minimally affect stock prices under certain assumptions. The second is the relevance theory, which includes Walter's and Gordon's approaches stating that dividend payouts do impact stock prices and a firm's cost of capital. It also describes Modigliani and Miller's approach and assumptions of perfect markets.
BOOK VALUE PER SHARE
This document discusses different types of shareholder equity, including:
- Book value per share, which is shareholder equity divided by number of shares
- Preference shareholder equity divided by preference shares
- Ordinary shareholder equity divided by ordinary shares
It also defines liquidation value, call price, and different types of preference shares and their dividend rights, such as cumulative, noncumulative, participating, and nonparticipating.
The document includes two illustrations calculating book value per share under different shareholder equity structures.
IAS 33-Earnings per share
Earnings per share (EPS) is a company's profit divided by its number of outstanding shares. It is important for investors to compare EPS over time and between companies. EPS can be basic, diluted, or adjusted for events like stock splits, bonus issues, or rights issues that affect the number of shares. Diluted EPS accounts for potentially dilutive securities like convertible debt. Anti-dilutive effects that increase EPS are ignored. Worked examples show how to calculate EPS under different circumstances.
Walter And Gordan theories
A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. Dividends are important for more than income generation: they also provide a way for investors to assess a company as an investment prospect. Dividend and market price of shares are interrelated. However, there are two schools of thought: while one school of thought opines that dividend has an impact on the value of the firm, another school argues that the amount of dividend paid has no effect on the valuation of firm.
The first school of thought refers to the Relevance of dividend while the other one relates to the Irrelevance of dividend.
Relevance includes: 1. Walter Valuation Model 2.GORDON’S MODEL.
Capitalisation
The document discusses capitalization levels in companies. It provides examples of a company being overcapitalized, with a 10% return on investment when the industry average is 20%, and undercapitalized, with a 30% return on an investment of Rs. 10 lakh when other companies need Rs. 15 lakh for a 20% return. Overcapitalization occurs when a company invests more funds than needed to generate its profits, while undercapitalization means not enough funds are invested given the level of profits.
Treatment of interest on capital as overhead
This document discusses whether interest on capital should be considered a proper charge to product cost. It provides several examples showing how interest expenses can impact profit calculations and comparisons between investment options. While interest is a real cost, it is rarely taken into account in cost records due to practical difficulties in determining the exact capital employed and interest rate. However, the document concludes it is proper to include interest in special reports to provide more accurate analyses in certain situations.
How the Synergy
95% of the initial investment will be used to purchase shares in an investment portfolio, with the remaining 5% held as cash. The cash is used to pay monthly income, administration fees, and collect dividend payments from shares to continue paying monthly income. In the first year, monthly income amounts are based on past dividend income from shares in the portfolio. The investment portfolio consists of 20 stocks from the FTSE100 selected based on dividend levels, history of paying dividends, stock price volatility. The portfolio is automatically rebalanced yearly to maintain equal value among shares, but rebalancing can also be done manually at any time.
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The document discusses dividend policies and theories. It defines dividends and describes different types of dividends. It then explains relevance theories including Walter's model and Gordon's model that consider dividends relevant to firm value. Irrelevance theories like Modigliani-Miller's model are also summarized. The document analyzes Aditya Birla Nuvo's dividend policy, noting it declared a 50% equity dividend of Rs. 5 per share for the year ending March 2016.
Dividend policy000
This document discusses several theories of dividends, including:
1. The relevance theory states that dividend policy affects firm value by influencing shareholders' preferences. The Walter model and Gordon's model fall under this theory.
2. The irrelevance theory, proposed by Modigliani and Miller, claims that dividend policy does not impact firm value under certain assumptions like perfect capital markets.
3. Other theories discussed include the Walter model, Gordon's model, and the residual model, each making different assumptions about factors like a firm's cost of capital and growth rate and how these relate to optimal dividend payout levels.
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The document summarizes information about stock dividends, stock splits, and dividend signaling theory presented by multiple students. It includes:
1. Definitions and calculations for stock dividends, how they affect the balance sheet, and that they do not change the equity position of shareholders.
2. Explanations of stock splits and reverse stock splits, noting they do not change the total capitalization but affect share price and number of shares.
3. Discussion of the clientele effect and how different types of investors prefer different dividend payout ratios, affecting stock prices.
4. Overview of the dividend signaling theory that increased dividend payments signal management optimism about the future and positively impact stock prices.
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The document discusses various dividend theories including:
- Walter's model which divides firms into growth, normal, and declining categories based on their return on investment and cost of capital. It provides a formula to calculate share price based on dividends, earnings, and growth.
- Gordon's model which states a firm's share price depends on its dividend payout ratio. It provides a formula to calculate share price based on earnings, retention ratio, cost of capital, and growth rate.
- The Miller and Modigliani hypothesis which argues that the value of a firm is determined by its earnings power and business risk alone, not its dividend policy.
Relevance and irrelevance theories of dividend decisions visakh ram mohan brim
This slide discusses the relevance and irrelevance theories of dividend decisions with regard to financial management
Dividend policy
The document discusses dividend policy and how firms determine whether to pay dividends or retain cash. It provides an overview of different views on dividends and examines factors like a firm's investment opportunities, earnings stability, and stockholder characteristics that influence dividend policy decisions. The key measures for evaluating dividend policy are the dividend payout ratio and dividend yield. Firms aim to maximize value by balancing paying dividends with retaining cash for profitable investment opportunities.
Payout Policy - Chapter 14 Gitman Book
This document summarizes the key aspects of payout policy discussed in Chapter 14 of a finance textbook. It outlines the learning goals, basic elements, and mechanics of payout policy. It discusses dividends, share repurchases, and their tax treatment. It also covers the residual theory of dividends, arguments regarding dividend relevance and irrelevance, and the three basic types of dividend policies. Overall, the document provides an overview of the major topics in corporate payout policy.
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The document discusses stocks, bonds, commissions, and various financial terms. It provides definitions and formulas for commission, rate, and sales in relation to commission. Examples are given to demonstrate how to calculate commission earned by a salesperson, determine commission rate, and calculate total sales based on commission and rate. The key differences between stocks and bonds are explained. Stocks represent ownership in a company, while bonds are a form of loan where interest is paid periodically.
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The document provides information about stocks and bonds. It defines key terms related to stocks like stock, dividend, dividend per share, stock market, market value, par value, and stock/current yield ratio. It also defines terms related to bonds like bond, coupon, coupon rate, price of a bond, term of a bond, fair price of a bond, par value, and provides examples of calculating dividend per share, stock yield ratio, semi-annual coupon amount, and fair price of a bond. The document aims to illustrate and distinguish between stocks and bonds for learners.
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This document discusses how to analyze common stocks through fundamental and technical analysis. It provides details on four methods of fundamental analysis: earnings per share, price to earnings ratio, dividend yield, and revenue per employee. These metrics use a company's financial data to evaluate its stock and predict future market performance. The document also briefly mentions technical analysis, which analyzes stock price trends, patterns, and market indices to predict future stock performance.
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Finance.presentation
This document discusses stock splits, reverse stock splits, and stock dividends. A stock split increases the number of shares by issuing more shares to existing shareholders, keeping the total value the same. It makes the stock more affordable. A reverse split decreases the number of shares to increase the stock price and avoid delisting. A stock dividend issues more shares to shareholders instead of a cash dividend to retain capital for reinvestment.
Dividend Yield Ratio
Dividend yield is a ratio that indicates the percentage return an investor can expect to receive from dividends on their investment based on the current market share price. It is calculated by dividing the annual dividend per share by the current market price per share. While some investors prioritize high dividend yields for income, companies with high yields often have poor growth prospects and do not reinvest enough earnings back into the business. In the long run, capital appreciation from investing in high growth companies that reinvest earnings can provide both higher overall returns and increasing future dividends compared to focusing solely on current dividend yield. Investors must consider the tradeoff between immediate dividend income versus future capital growth and dividend potential.
Lintner and mm dividend models
The document summarizes the Lintner and Modigliani-Miller (MM) dividend models.
The Lintner model states that companies set long-run dividend to earnings ratios based on available investment opportunities. Dividend policy does not change until new earnings levels are seen as sustainable.
The MM hypothesis argues that dividend policy does not affect share prices or firm value. What matters is the investment policy that increases earnings. Investors are indifferent between dividends and retained earnings.
An example shows that under the MM assumptions, the value of a firm remains the same whether dividends are paid or not, proving shareholders' indifference between retention and dividends. However, the MM assumptions are unrealistic and
Types of Dividend
Let's today to know something about Dividend...... A dividend is an extra income to dividend holder which totally tax-free in hands of Receiver which is considered the source of income.
Dividend policy
This document discusses dividend policy and the theories around it. It outlines two main theories - the dividend irrelevance theory proposed by Miller and Modigliani, which states that dividend payouts minimally affect stock prices under certain assumptions. The second is the relevance theory, which includes Walter's and Gordon's approaches stating that dividend payouts do impact stock prices and a firm's cost of capital. It also describes Modigliani and Miller's approach and assumptions of perfect markets.
BOOK VALUE PER SHARE
This document discusses different types of shareholder equity, including:
- Book value per share, which is shareholder equity divided by number of shares
- Preference shareholder equity divided by preference shares
- Ordinary shareholder equity divided by ordinary shares
It also defines liquidation value, call price, and different types of preference shares and their dividend rights, such as cumulative, noncumulative, participating, and nonparticipating.
The document includes two illustrations calculating book value per share under different shareholder equity structures.
IAS 33-Earnings per share
Earnings per share (EPS) is a company's profit divided by its number of outstanding shares. It is important for investors to compare EPS over time and between companies. EPS can be basic, diluted, or adjusted for events like stock splits, bonus issues, or rights issues that affect the number of shares. Diluted EPS accounts for potentially dilutive securities like convertible debt. Anti-dilutive effects that increase EPS are ignored. Worked examples show how to calculate EPS under different circumstances.
Walter And Gordan theories
A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. Dividends are important for more than income generation: they also provide a way for investors to assess a company as an investment prospect. Dividend and market price of shares are interrelated. However, there are two schools of thought: while one school of thought opines that dividend has an impact on the value of the firm, another school argues that the amount of dividend paid has no effect on the valuation of firm.
The first school of thought refers to the Relevance of dividend while the other one relates to the Irrelevance of dividend.
Relevance includes: 1. Walter Valuation Model 2.GORDON’S MODEL.
Capitalisation
The document discusses capitalization levels in companies. It provides examples of a company being overcapitalized, with a 10% return on investment when the industry average is 20%, and undercapitalized, with a 30% return on an investment of Rs. 10 lakh when other companies need Rs. 15 lakh for a 20% return. Overcapitalization occurs when a company invests more funds than needed to generate its profits, while undercapitalization means not enough funds are invested given the level of profits.
Treatment of interest on capital as overhead
This document discusses whether interest on capital should be considered a proper charge to product cost. It provides several examples showing how interest expenses can impact profit calculations and comparisons between investment options. While interest is a real cost, it is rarely taken into account in cost records due to practical difficulties in determining the exact capital employed and interest rate. However, the document concludes it is proper to include interest in special reports to provide more accurate analyses in certain situations.
How the Synergy
95% of the initial investment will be used to purchase shares in an investment portfolio, with the remaining 5% held as cash. The cash is used to pay monthly income, administration fees, and collect dividend payments from shares to continue paying monthly income. In the first year, monthly income amounts are based on past dividend income from shares in the portfolio. The investment portfolio consists of 20 stocks from the FTSE100 selected based on dividend levels, history of paying dividends, stock price volatility. The portfolio is automatically rebalanced yearly to maintain equal value among shares, but rebalancing can also be done manually at any time.
Financial management
The document discusses dividend policies and theories. It defines dividends and describes different types of dividends. It then explains relevance theories including Walter's model and Gordon's model that consider dividends relevant to firm value. Irrelevance theories like Modigliani-Miller's model are also summarized. The document analyzes Aditya Birla Nuvo's dividend policy, noting it declared a 50% equity dividend of Rs. 5 per share for the year ending March 2016.
Dividend policy000
This document discusses several theories of dividends, including:
1. The relevance theory states that dividend policy affects firm value by influencing shareholders' preferences. The Walter model and Gordon's model fall under this theory.
2. The irrelevance theory, proposed by Modigliani and Miller, claims that dividend policy does not impact firm value under certain assumptions like perfect capital markets.
3. Other theories discussed include the Walter model, Gordon's model, and the residual model, each making different assumptions about factors like a firm's cost of capital and growth rate and how these relate to optimal dividend payout levels.
Chap011
This document discusses accounting for owners' equity in different types of business organizations including corporations, sole proprietorships, and partnerships. It covers topics like authorized shares, issued shares, treasury shares, retained earnings, contributed capital, dividends, stock transactions, and equity accounts for sole proprietors and partnerships.
Dividend Decision Day 2
The document summarizes information about stock dividends, stock splits, and dividend signaling theory presented by multiple students. It includes:
1. Definitions and calculations for stock dividends, how they affect the balance sheet, and that they do not change the equity position of shareholders.
2. Explanations of stock splits and reverse stock splits, noting they do not change the total capitalization but affect share price and number of shares.
3. Discussion of the clientele effect and how different types of investors prefer different dividend payout ratios, affecting stock prices.
4. Overview of the dividend signaling theory that increased dividend payments signal management optimism about the future and positively impact stock prices.
Ch 7
The document discusses various dividend theories including:
- Walter's model which divides firms into growth, normal, and declining categories based on their return on investment and cost of capital. It provides a formula to calculate share price based on dividends, earnings, and growth.
- Gordon's model which states a firm's share price depends on its dividend payout ratio. It provides a formula to calculate share price based on earnings, retention ratio, cost of capital, and growth rate.
- The Miller and Modigliani hypothesis which argues that the value of a firm is determined by its earnings power and business risk alone, not its dividend policy.
Relevance and irrelevance theories of dividend decisions visakh ram mohan brim
This slide discusses the relevance and irrelevance theories of dividend decisions with regard to financial management
Dividend policy
The document discusses dividend policy and how firms determine whether to pay dividends or retain cash. It provides an overview of different views on dividends and examines factors like a firm's investment opportunities, earnings stability, and stockholder characteristics that influence dividend policy decisions. The key measures for evaluating dividend policy are the dividend payout ratio and dividend yield. Firms aim to maximize value by balancing paying dividends with retaining cash for profitable investment opportunities.
Payout Policy - Chapter 14 Gitman Book
This document summarizes the key aspects of payout policy discussed in Chapter 14 of a finance textbook. It outlines the learning goals, basic elements, and mechanics of payout policy. It discusses dividends, share repurchases, and their tax treatment. It also covers the residual theory of dividends, arguments regarding dividend relevance and irrelevance, and the three basic types of dividend policies. Overall, the document provides an overview of the major topics in corporate payout policy.
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Relevance and irrelevance theories of dividend decisions visakh ram mohan brim
Relevance and irrelevance theories of dividend decisions visakh ram mohan brim
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- 1. DEFINITION OF TERMS IN RELATION TO STOCKS ALAN S. ABERILLA
- 2. STOCKS – Share in the ownership of a company DIVIDEND – Share in the company’s profit DIVIDEND PER SHARE – Ratio of the dividend to the number of shares STOCK MARKET – A place where stocks can be bought or sold. The stock market in the Philippines is governed by the Philippine Stock Exchange (PSE) MARKET VALUE – The current price of a stock at which it can be sold STOCK YIELD RATIO – Ratio of the annual dividend per share and the market value per share. Also called current stock yield PAR VALUE – The value per share amount as stated on the company certificate. Unlike market value, it is determined by the company and remains stable over time
- 3. Example 1. A certain financial institution declared a P 30,000,000.00 dividend for the common stocks. If the are a total of 700,000 shares of common stock, how much is the dividend per share? Given: Total Dividend = P 30,000,000.00 Total Shares = 700,000 Find: Dividend per Share Solution: Dividend per Share = Total Dividend / Total Shares = P 30,000,000.00 / 700,000 = P 42.86 Therefore, the dividend per share is P 42.86
- 4. Example 3. Corporation A, with a current market value of P 52.00, gave a dividend of P 8.00 per share for its common stock. Corporation B, with a current market value of P 95.00, gave a dividend of P 12.00 per share. Use the stock yield ratio to measure how much dividends shareholders are getting in relation to the amount invested. Corporation A: Given: Dividend Per Share = P 8.00 Market Value = P 52.00 Find: Stock Yield Ratio Solution: Stock Yield Ratio = Dividend Per Share / Market Value = P 8.00 / P 52.00 = 0.1538 = 15.38%
- 5. Corporation B: Given: Dividend Per Share = P 12.00 Market Value = P 95.00 Find: Stock Yield Ratio Solution: Stock Yield Ratio = Dividend Per Share / Market Value = P 12.00 / P 95.00 = 0.1263 = 12.63% Corporation A has a higher stock yield ratio than Corporation B. Thus, each peso would earn you more if you invest in Corporation A that in Corporation B. The stock yield ratio can be used to compare two or more investments.
- 6. ACTIVITY 10 Solve the following: 1. A financial institution declared a dividend of P 75,000,000.00 for its common stock. Suppose there are 900,000 shares of common stock, how much is the dividend per share? 2. The ABC corporation gave out P 38.00 dividend per share for its common stock. The market value of the stock is P 108.00. Determine the stock yield ratio. 3. A bank declared a dividend of P 27.00 per share for the common stock. If the common stock closes at P 93.00, how much is the stock yield ratio on this investment? References: Hart, William: Mathematics of Investment ; Department of Education, General Mathematics
- 7. KEEP SAFE GOOD LUCK GOD BLESS Sir A