Investments

There are many ratios that investors and financial advisers use to compare and value shares.

The more common ratios are as follows:

• Dividend yield – dividend per share divided by the current share price (this is usually compared to yields from property, fixed interest and cash). 
• Earnings yield – company earnings per share divided by share price. Companies may not pay out all of their profits as dividends. 
• Price to earnings ratio (P/E ratio) – price of the share divided by the earnings per share. The PE ratio compares a company’s share price to its annual earnings per share and is used to determine the valuation of the share. Advisers and economists often use this ratio to compare shares in companies of similar size and industry. A high P/E ratio, compared to similar companies, can mean that a share’s price is high relative to earnings and possibly overvalued. A low P/E ratio might indicate that the current share price is low relative to earnings.