RATIO ANALYSIS TECHNIQUE IN 2008-
09
DIVIDEND PAYOUT RATIO Dividend payout ratio is the ratio between dividend per equity share and earnings per equity share. This ratio indicates to what portion of earnings per share has been used for paying dividend and what portion has been retained for ploughing back. It also throws light on the chances of appreciation in the price of the shares. The payout ratio is expressed as follows: Dividend payout ratio =
Dividend per equity share / Earnings per equity share X
100 A low payout ratio indicates that only a small portion of earnings of the company has been used for dividend and the major portion if the earnings is retained as ploughing back. On the other hand, a very high payout ratio indicates that the entire earning of the company has been for dividend, and nothing is retained for ploughing back.
PRICE EARNING RATIO Price Earnings Ratio is the ratio, which express the relationship between market price per share and earnings per share. The price earnings ratio is usually expressed as follows: Price earnings ratio = Market price per equity share / Earnings per equity share This ratio indicates the number of times the earnings per share is covered by its market price. This ratio is very useful to an investor for predicting the market price of the share at some future data. It is also useful to the financial manager in connection with the fresh issue of shares.
INTEREST EARNED TO TOTAL INCOME This ratio assesses the share of interest income of the bank, as interest is a major source of income to a bank. This ratio can be applied to both aspects of interest earned on investments and interest earned on loans and advances.
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