Investments
Asset class - shares
Share ratios in practice
Let’s look at the ratios in a few examples.
Let’s say shares in BHP are $30.00. The earnings are $3.00 per share and the annual dividend is $1.50. The ratios for BHP would be as follows:
Dividend yield: $1.50 / $30.00, which is 5%.
Earnings yield: $3.00 / $30.00, which is 10%.
Price to earnings ratio: $30.00 / $3.00 which is 10.
This indicates to you that BHP is paying out half of its earnings to shareholders as dividends.
The other half may, for example, be used within the company to pay down debt or fund a potential acquisition or for a major business spend such as IT.
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