COB 242 1st Edition Lecture 3Outline of Current Lecture 1. Financial Statement Analysis (continued)a. Market Performancei. Earnings per shareii. Price earning ratioiii. Dividend payout ratioiv. Dividend yield ratiov. Book value per shareCurrent Lecture1. Financial Statement Analysis (continued)a. Market Performancei. Earnings per share- earnings form the basis for dividend payments and future increases in the value of shares of stock1. Net income / average number of common shares outstanding = earnings per share2. Indicates how much income was earned for each share of common stock outstandingii. Price earning ratio- 1. Market price per share / earnings per share = price earning ratio2. Higher ratio means that investors are willing to pay a premium for a company’s stock because of optimistic future growth prospectsiii. Dividend payout ratio- gauges the portion of current earnings being paid out in dividends 1. Dividends per share / earnings per share = dividend payout ratio2. Investors seeking dividends want a large ratio3. Investors seeking market price growth want a small ratioiv. Dividend yield ratio- identifies the return, in terms of cash dividends, on the current market price of the stock1. Dividends per share / market price per share = dividend yield ratiov. Book value per share- measures the amount that would be distributed to holders of each share of common stock if all assets were sold at their balance sheet carrying amounts after all creditors were paid off (based onhistorical costs)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.1. Common stockholders’ equity / number of common shares outstanding = book value per