This week I want to discuss financial ratios. As dull as this might sound, knowing how to calculate and use them can help you assess a company's business performance, summarise its financial status and identify relevant trends. There are many ratios in investing, but I'm going to focus on the most useful ones.
However, remember that ratios are based on historical data, so they are not predictive, meaning that they should not be the only things you use to determine whether or not to purchase a stock.
The key ratio headers are profitability and solvency. After all, a company's survival is dependent upon both its profitability and an ability to generate sufficient cash to support its day-to-day operations.
Profitability measures track past performance and outlook. Important concepts to know are return on capital employed (ROCE) and return on equity (ROE). ROCE is seen as the best ratio for measuring overall management performance in relation to the capital that has been paid into the business. This ratio will give you a yield percentage for the company as a whole, which you can then compare with other investments. ROE is usually found in the annual financial statements. Solvency reflects a company's debt and its net worth.
Other inportant ratios are gearing (also known as debt-to-equity), interest cover and the current ratio. These are indicators of a company's ability to service its debt. Keep in mind that interest on debt must be paid, while dividends on equity need not. So the higher the proportion of debt a company has, the higher the risk to an investor. Net asset value (NAV) is useful for assessing the minimum price at which the share should trade, and is particularly applicable to property companies and investment trusts. You can calculate the NAV by dividing net assets, less preference shares and minority interests, by ordinary shares in issue.
Earnings per share (EPS) is the amount of net profit that is available to be paid out to each share. You calculate the EPS by dividing the earnings (net profits) by the number of ordinary shares in issue.
The net dividend yield gives you the total dividends paid out over a year as a percentage of the current share price. Divide the net dividend by the current share price and multiply by 100. While a high yield may appear tempting, it could signify the market's lack of confidence in a company's future ability to pay a dividend. The dividend cover is used to assess how well a company covered the payout with its profits. To reach this figure, divide the EPS by the net dividend per share. A cover of less than 1 means that the year's profits were not enough to cover the dividend.
The best known ratio is the price/earnings (P/E) ratio, or multiple. It gives investors a quick and easy way to identify shares that are either underpriced or overpriced.
This is calculated by dividing the share price by the EPS. Let's say a company's stock is selling for $10 and the EPS is two; this gives us a P/E ratio of five. A high P/E suggests that a stock is overpriced. But it could also mean that investors see bright profit prospects. One thing I tell students is that they shouldn't invest in a company with no P/E ratio at all, because they have no earnings - remember all those dot.com companies? And beware of P/E ratios above 50; buying a share in one of them would be speculation, not investing.
John McGaw is a financial adviser in Dubai. Contact him at jmcgaw@emirates.net.ae
Info
What: 11th edition of the Mubadala World Tennis Championship
When: December 27-29, 2018
Confirmed: men: Novak Djokovic, Rafael Nadal, Kevin Anderson, Dominic Thiem, Hyeon Chung, Karen Khachanov; women: Venus Williams
Tickets: www.ticketmaster.ae, Virgin megastores or call 800 86 823
What the law says
Micro-retirement is not a recognised concept or employment status under Federal Decree Law No. 33 of 2021 on the Regulation of Labour Relations (as amended) (UAE Labour Law). As such, it reflects a voluntary work-life balance practice, rather than a recognised legal employment category, according to Dilini Loku, senior associate for law firm Gateley Middle East.
“Some companies may offer formal sabbatical policies or career break programmes; however, beyond such arrangements, there is no automatic right or statutory entitlement to extended breaks,” she explains.
“Any leave taken beyond statutory entitlements, such as annual leave, is typically regarded as unpaid leave in accordance with Article 33 of the UAE Labour Law. While employees may legally take unpaid leave, such requests are subject to the employer’s discretion and require approval.”
If an employee resigns to pursue micro-retirement, the employment contract is terminated, and the employer is under no legal obligation to rehire the employee in the future unless specific contractual agreements are in place (such as return-to-work arrangements), which are generally uncommon, Ms Loku adds.
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
The National photo project
Chris Whiteoak, a photographer at The National, spent months taking some of Jacqui Allan's props around the UAE, positioning them perfectly in front of some of the country's most recognisable landmarks. He placed a pirate on Kite Beach, in front of the Burj Al Arab, the Cheshire Cat from Alice in Wonderland at the Burj Khalifa, and brought one of Allan's snails (Freddie, which represents her grandfather) to the Dubai Frame. In Abu Dhabi, a dinosaur went to Al Ain's Jebel Hafeet. And a flamingo was taken all the way to the Hatta Mountains. This special project suitably brings to life the quirky nature of Allan's prop shop (and Allan herself!).
Match info
Uefa Champions League Group F
Manchester City v Hoffenheim, midnight (Wednesday, UAE)
MATCH INFO
Wales 1 (Bale 45 3')
Croatia 1 (Vlasic 09')
War 2
Director: Ayan Mukerji
Stars: Hrithik Roshan, NTR, Kiara Advani, Ashutosh Rana
Rating: 2/5
Key findings of Jenkins report
- Founder of the Muslim Brotherhood, Hassan al Banna, "accepted the political utility of violence"
- Views of key Muslim Brotherhood ideologue, Sayyid Qutb, have “consistently been understood” as permitting “the use of extreme violence in the pursuit of the perfect Islamic society” and “never been institutionally disowned” by the movement.
- Muslim Brotherhood at all levels has repeatedly defended Hamas attacks against Israel, including the use of suicide bombers and the killing of civilians.
- Laying out the report in the House of Commons, David Cameron told MPs: "The main findings of the review support the conclusion that membership of, association with, or influence by the Muslim Brotherhood should be considered as a possible indicator of extremism."
MATCH INFO
Newcastle United 3
Gayle (23'), Perez (59', 63')
Chelsea 0
AI traffic lights to ease congestion at seven points to Sheikh Zayed bin Sultan Street
The seven points are:
Shakhbout bin Sultan Street
Dhafeer Street
Hadbat Al Ghubainah Street (outbound)
Salama bint Butti Street
Al Dhafra Street
Rabdan Street
Umm Yifina Street exit (inbound)
The Year Earth Changed
Directed by:Tom Beard
Narrated by: Sir David Attenborough
Stars: 4
Black Panther
Dir: Ryan Coogler
Starring: Chadwick Boseman, Michael B Jordan, Lupita Nyong'o
Five stars
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
Read more from Aya Iskandarani
Killing of Qassem Suleimani
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
F1 drivers' standings
1. Lewis Hamilton, Mercedes 281
2. Sebastian Vettel, Ferrari 247
3. Valtteri Bottas, Mercedes 222
4. Daniel Ricciardo, Red Bull 177
5. Kimi Raikkonen, Ferrari 138
6. Max Verstappen, Red Bull 93
7. Sergio Perez, Force India 86
8. Esteban Ocon, Force India 56
How to wear a kandura
Dos
- Wear the right fabric for the right season and occasion
- Always ask for the dress code if you don’t know
- Wear a white kandura, white ghutra / shemagh (headwear) and black shoes for work
- Wear 100 per cent cotton under the kandura as most fabrics are polyester
Don’ts
- Wear hamdania for work, always wear a ghutra and agal
- Buy a kandura only based on how it feels; ask questions about the fabric and understand what you are buying
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
KEY%20DATES%20IN%20AMAZON'S%20HISTORY
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Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Ferrari 12Cilindri specs
Engine: naturally aspirated 6.5-liter V12
Power: 819hp
Torque: 678Nm at 7,250rpm
Price: From Dh1,700,000
Available: Now
The years Ramadan fell in May
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
The specs
Engine: 4.0-litre V8 twin-turbocharged and three electric motors
Power: Combined output 920hp
Torque: 730Nm at 4,000-7,000rpm
Transmission: 8-speed dual-clutch automatic
Fuel consumption: 11.2L/100km
On sale: Now, deliveries expected later in 2025
Price: expected to start at Dh1,432,000
Racecard
6pm: The Pointe - Conditions (TB) Dh82,500 (Turf) 1,400m
6.35pm: Palm West Beach - Maiden (TB) Dh82,500 (T) 1,800m
7.10pm: The View at the Palm - Handicap (TB) Dh85,000 (Dirt) 1,400m
7.45pm: Nakeel Graduate Stakes - Conditions (TB) Dh100,000 (T) 1,600m
8.20pm: Club Vista Mare - Handicap (TB) Dh95,000 (D) 1,900m
8.55pm: The Palm Fountain - Handicap (TB) Dh95,000 (D) 1,200m
9.30pm: The Palm Tower - Handicap (TB) Dh87,500 (T) 1,600m
General%20Classification
%3Cp%3E1.%20Elisa%20Longo%20Borghini%20(ITA)%20Trek-Segafredo%3Cbr%3E2.%20Gaia%20Realini%20(ITA)%20Trek-Segafredo%207%20secs%3Cbr%3E3.%20Silvia%20Persico%20(ITA)%20UAE%20Team%20ADQ%201%20min%2018%20secs%3C%2Fp%3E%0A
Our legal advisor
Ahmad El Sayed is Senior Associate at Charles Russell Speechlys, a law firm headquartered in London with offices in the UK, Europe, the Middle East and Hong Kong.
Experience: Commercial litigator who has assisted clients with overseas judgments before UAE courts. His specialties are cases related to banking, real estate, shareholder disputes, company liquidations and criminal matters as well as employment related litigation.
Education: Sagesse University, Beirut, Lebanon, in 2005.
What sanctions would be reimposed?
Under ‘snapback’, measures imposed on Iran by the UN Security Council in six resolutions would be restored, including:
- An arms embargo
- A ban on uranium enrichment and reprocessing
- A ban on launches and other activities with ballistic missiles capable of delivering nuclear weapons, as well as ballistic missile technology transfer and technical assistance
- A targeted global asset freeze and travel ban on Iranian individuals and entities
- Authorisation for countries to inspect Iran Air Cargo and Islamic Republic of Iran Shipping Lines cargoes for banned goods
