Overview

In this lesson

1. 0:00 Performance measurement and ratio analysis
2. 0:47 Understanding ratio benchmarks and comparisons
3. 1:41 Total shareholder return explained
4. 2:53 Earnings per share calculation and application

About this lesson

You'll explore two key shareholder ratios—total shareholder return and earnings per share—that investors use to assess investment strength and potential returns. This foundational knowledge is critical for Performance Management (PM) and Advanced Performance Management (APM) papers, where you'll need to apply these ratios confidently in exam conditions without formula sheets. By mastering these metrics, you'll be able to evaluate whether a company is meeting its corporate objectives and help stakeholders make informed investment decisions. Ratio analysis works by examining relationships between financial figures from the financial statements, but these ratios only become meaningful when compared against benchmarks such as previous years' performance, competitor results, industry averages, or budgeted targets. Without context, even strong-looking numbers tell you nothing about actual performance. Total shareholder return is a comprehensive measure that combines dividend income with capital gains from share price movement, giving shareholders a complete picture of their investment returns. Earnings per share, by contrast, shows the theoretical maximum dividend available to ordinary shareholders by dividing earnings attributable to ordinary shareholders by the weighted average number of ordinary shares. While earnings per share assumes all profits could be distributed (which rarely happens), it remains a widely used benchmark for comparing performance across years and against other organisations.

Duration: 5m