Equity finance
Equity finance

This free course is available to start right now. Review the full course description and key learning outcomes and create an account and enrol if you want a free statement of participation.

Free course

Equity finance

1.7 Monitoring equity performance

For those equities in issue their current market value and some indicators of their performance are provided in the daily press. Table 3 shows the closing levels and the volume of shares traded in respect of a selection of companies on the London, New York, Frankfurt and Tokyo Stock Exchanges on 7 June 2005.

Table 3: Selected MNC equity prices – 7 June 2005

Company Price High * Low * Yield PE Traded volume
London (p) (p) (p) (%) (’000s)
BT 218 218 177.5 4.9 12.2 57,986
BSkyB 538.5 633.5 465.5 1.3 20.9 4,478
Cadbury Schweppes 543.5 567 421 2.3 19.4 41,699
GlaxoSmithKline 1,377 1,377 1,042 3.1 20.0 12,036
Hanson 510 536.75 360 3.6 10.2 3,877
HSBC 872 953.5 784 4.2 13.9 24,035
Shell Transport 487.5 505.5 384.5 3.5 12.8 38,793
New York (US$) (US$) (US$) (%) (’000s)
AT&T 18.94 19.85 13.70 35.0 ** 2,953
General Motors 30.73 48.26 25.60 6.5 34.9 5,644
IBM 75.04 98.58 72.01 1.1 14.7 4,053
Pepsico 55.90 57.12 47.85 1.9 22.2 3,697
Frankfurt (€) (€) (€) (%) (’000s)
Adidas 135.65 136.98 93.96 1.0 19.7 209
Deutsche Bank 64.31 69.39 52.90 2.6 13.8 3,603
Lufthansa 10.40 11.61 8.63 2.9 11.1 4,269
VW 36.68 38.38 30.71 2.9 21.0 1,907
Tokyo (¥) (¥) (¥) (%) (’000s)
Mitsui 983 1,074 801 2.0 12.8 2,352
Sony 3,890 4,400 3,590 0.6 22.1 3,918
Suzuki 1,719 1,986 1,642 0.5 15.2 1,423
Vodaphone 226,000 300,000 196,000 0.5 5.9 1
* Over past 52 weeks.
** Not available.

SAQ 7

In Table 3 what do the terms ‘PE’ and ‘yield’ mean? Why do they vary so much from company to company?

Answer

PE is the price/earnings ratio – the ratio of the price per share to the earnings per share in the last reported period. Yield means the dividend per share paid by the company as a percentage of the share price.

The different PE ratios reflect the differing risk characteristics of the companies (and their business sector) and the view held by investors about the growth prospects for the company. A company with substantial growth potential will have a high PE relative to a peer company with limited scope for growth. Additionally a high PE may reflect a company which is experiencing business difficulties (and hence is generating low earnings) but one which investors expect to recover.

The differing dividend yields reflect, to a degree, current performance by the companies in generating earnings and different policies towards distributing these earnings through dividends. Here there are clear international differences which the data in Table 3 bring out. Japan and, increasingly, the USA have traditions of paying out low, or no, dividends. In contrast the UK has a tradition of paying higher dividends – although this tradition was, to a degree, rooted in the tax advantages to certain shareholders (specifically tax credits to pension funds) that were removed in 1998.

B854_1

Take your learning further

Making the decision to study can be a big step, which is why you'll want a trusted University. The Open University has 50 years’ experience delivering flexible learning and 170,000 students are studying with us right now. Take a look at all Open University courses.

If you are new to university level study, find out more about the types of qualifications we offer, including our entry level Access courses and Certificates.

Not ready for University study then browse over 900 free courses on OpenLearn and sign up to our newsletter to hear about new free courses as they are released.

Every year, thousands of students decide to study with The Open University. With over 120 qualifications, we’ve got the right course for you.

Request an Open University prospectus