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| Subject: Extract from N.E. Renton---Understanding the Stockmarket Sydney scenario's | |
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Author: 920 &921 BRW Business Library-earnings yield |
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Date Posted: 11:20:16 01/14/03 Tue Extract from N.E. Renton---Understanding the Stockmarket 920 and 921 BRW Business Library---Third Edition. ---------------------------------------------------------------------- (highlighted points my own) ---------------------------------------------------------------------- The earnings yield is obtained by dividing the eps figure in cents per share by the current market price of the share (also expressed in cents) This is a measure of the performance of the company to an investor and can be compared to interest rate levels generally. It is a much more useful yardstick than dividend yield discussed in paragraphs 930 to 931, which because it is the function of the payout ratio---ignores the fact that ordinary shareholders benefit from a company's earnings irrespective of whether these are distributed or not. ---------------------------------------------------------------------- Yields are normally expressed as percentages (thus eps 10.8 and market price 150 gives an earnings yield of 7.2%.) ---------------------------------------------------------------------- Chapter 921. ---------------------------------------------------------------------- Other things being equal, the higher the earnings yield, the better the value inherent in a transaction for a purchaser. However things are never equal and some apparent bargains may be quite illusory. Distortions can arise from the mechanical nature of the arithmetic. Investors are much more interested in the future than the past and market prices reflect such expectations. ---------------------------------------------------------------------- Dividing the last published earnings figure by a current market value can produce a nonsense result, especially if losses or significantly reduced profits for subsequent years are now expected. Just before a new annual report is due the available full year data will normally refer to a period which ended about 15 months earlier and which commenced 12 months before that, in other words 27 months ago, perhaps under very different conditions. ---------------------------------------------------------------------- 1.09 rounded 1.1 divided by 20----5.5%----Sydney 2.1 divided by 20--equals 10.5% The calculation of eps further includes all tradeable and non tradeable shares plus notes converted into shares---the reality of it is we usually just go on tradeable shares---just to be conservative though Ive added the whole lot up. ----------------------------------------------------------- Notes to the above N.E. Renton --looking through published reports the data can be up to 27 months old---the figures given above are calculations here and now---not 27 months ago---done last weekend. They may be slightly out--even they are---it is a staggering yield---even more so with Sydney---hence the truth-----actually looks nonsensical---which is why it is oversold on the extreme. [ Next Thread | Previous Thread | Next Message | Previous Message ] |