The Definitive Guide to Business Finance: What smart managers do with the numbers, Second Edition

Investment indicators

Return on equity

Profit (after tax) divided by owners’ equity

Alternative measures of return (return on assets and return on capital employed) are significant for the business manager. But this one, return on equity, is critical to shareholders. It is their bottom line.

Earnings per share (EPS, net income per ordinary share)

Profit divided by number of ordinary shares

The profit attributable to each ordinary share (i.e. after tax, etc.) is one number that you cannot compare between companies directly – it depends on the number of shares issued. But the trend over time is often regarded as critical. As already discussed, for many companies steady long-term growth in earnings per share is the central objective. Calculate ...