Personal Finance Tip of the Day

Handy Math 2e
ISBN: 9781578593736

How are some stock market financial indicators calculated?

  • Dividends are taxable payments distributed to shareholders.
  • Dividend yield is made by the dividend divided by the stock price.
  • A price/earnings ratio is the ratio between a stock's price to its earnings.

There are numerous financial indicators associated with the stock market, and they all have to do with mathematical calculations. Dividends are taxable payments put forth by a company's board of directors and distributed to its shareholders. These moneys come from the company's current or retained earnings and are usually paid out every quarter. They can be either in the form of a cash dividend (usually in check form), stock dividend, or other property.

The dividend yield is the yield paid out by a company to shareholders in the form of dividends, calculated by the amount of dividends paid per share over a year, then divided by the stock's price. For example, if a stock pays out $2 in dividends over the course of a year and trades at $40, the dividend yield is 5 percent.

The P/E ratio stands for "price/earnings ratio," a measure of a stock's amount to its earnings per share. It is a measure of a stock's market capitalization divided by its after-tax earnings over a 12-month period. The higher the P/E ratio, the more the market is willing to pay for each dollar of annual earnings. Of course, companies with negative earnings (or those that are not profitable) have no P/E ratio at all.

From The Handy Math Answer Book by Patricia Barnes-Svarney and Thomas E. Svarney, (c) 2005 Visible Ink Press(r) An invaluable guide that simplifies the complex world of math in a handy question-and-answer format.
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