Interactive workbook: Go back over this again - Exercise 8.9 – The five performance ratios - Introduction to Accounting 2e Student Resources

Ratio analysis 1: profitability, ef ficiency, and performance

Instructions

Study the statements below relating to the five performance ratios. Match each performance ratio to the statement which describes each ratio most accurately.

a)	Helps investors decide how safe their future income will be
b)	Indicates how many years it would take a share to pay back if earnings remained the same for the foreseeable future
c)	Represents the dividend that would be paid out if all the earnings were distributed to shareholders
d)	Combines with capital appreciation to indicate the total shareholder return
e)	Divides (profit for the year – preference dividends) by the number of ordinary shares in issue
f)	Compares profits generated to the number of ordinary shares in issue
g)	Can be compared to EPS to indicate the payout ratio
h)	Ordinary dividends per share divided by the current market price of one ordinary share
i)	Divides EPS into the current market price of one ordinary share
j)	Measures how many times the current year ordinary dividend could be paid from the profit for the year
k)	Measures the security of the dividend paid
l)	Tells shareholders about their actual income from each share
m)	Expresses dividends as a percentage return on the current market price