market values" UK Listed Companies evaluate companies Investor Ratios Profitability Ratios. With reference statement: require critically appraise importance market balance sheet UK listed companies critical assess a relevant range investor profitability ratios measuring performance.
Market value and balance sheet value
A British firm listed on the market is generally traded at its market value, regardless of its balance sheet value. At a simplistic level, the balance sheet value represents the value of the firm as it is computed within the organization and in terms of the company's resources, revenues and other internal values. The market value on the other hand is the value of the company as it is assigned by the multitude of players in the market, and which is often computed based on elements intrinsic to the market, such as profitability of the company, risks and so on.
At a more specific level, the two concepts can be defined as follows:
Market value: "(1) The current quoted price at which investors buy or sell a share of common stock or a bond at a given time. Also known as "market price." (2) The market capitalization plus the market value of debt. Sometimes referred to as "total market value" (Investopedia, 2010).
Balance sheet value, more commonly know as book value: "(1) The value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation. (2) The net asset value of a company, calculated by total assets minus intangible assets (patents, goodwill) and liabilities" (Investopedia, 2010).
The difference between the market value and the balance sheet value is mostly observable at the level of securities -- such as bonds and stocks. In this case, the investor will be introduced to the market value of a company's stock, and will then have to conduct individual research in order to identify the correlation between that value and the balance sheet value. In this endeavor, he would use various measures, such as the net assets and the final result would be that of revealing whether the two values match, or whether the stock is undervalued or overvalued, when compared to the book value.
Finally, the last thing which should be mentioned about balance sheet value and market value for an economic agent listed on the United Kingdom stock market is that the two would differ as a result of one particular element -- future potential. In this order of ideas, while the book value is be computed based on present elements, the market value also integrates the future potential the company reveals for growth (Investopedia, 2010).
2. Investor ratios and profitability ratios
Whenever an individual or a group of investors is looking to invest in a UK listed organization, it has to conduct thorough analyses. "One aspect of smart investing is being able to determine whether or not a company is a healthy company in general and not just this past year. You also want to know if a stock is really a bargain or not. Stock price and dividends are good to know, but not the only pieces of information you need to make sound, long-term investment decisions" (Essortment).
Two specific means of conducting these analyses on firms are represented by the investor ratios and the profitability ratios. The investor ratios are a rather complex category of ratios, but they have the advantage of being rather easy to compute. Additionally, once calculated, they can be used in further analyses, through correlation with other rations, and lead to more complex findings.
The main investor ratios used to appraise shares refer to the following:
Earnings per share (EPS), which is computed by dividing the profit available to equity shareholders by the average number of issued equity shares
Dividends per share, which are computed through the division of the dividends paid to equity owners by the average number of issued equity shares
The dividend yield, which is computed through the division of the latest annual dividends by the current market share price
The dividend cover, computed by dividing the net profit available to equity owners by the dividends paid to equity shareholders
Last, the price / earning ratio (P/E ratio), which is computed through the division of the current market share price by the earnings per share (Bized, 2010).