Business, Careers & Technology
Investing your money
The terms you need to know
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Terence Zimwara
ou may have been going through a newspaper over the past few weeks and you noticed there were financial results of many listed companies. The financial results which are presented in accounting form are loaded with a lot of jargon that would normally dissuade readers from reading further. However, in this column we seek to demystify some of the technical terms and explain them simply. The first term or phrase which potential investors must understand is the earnings per share (EPS). EPS is an expression of a company’s profit after operating costs and taxes have been deducted. The figure is obtained by dividing profits with the number of outstanding shares held by shareholders. A high value of this EPS relative to a company’s share price may mean the said company has a very high rate of return and is therefore a good investment. This is one very important figure that an investor should always look out for when seeking a suitable investment. A dividend is the distribution of a
portion of a company’s earnings which is paid to ordinary shareholders. The dividend is most often quoted in terms of the dollar amount each share receives, that is, dividends per share. Dividends may be in the form of cash, stock or property. Most secure and stable companies especially blue chip stocks offer dividends to their shareholders on a regular basis. The share prices of these companies might not move much, but the regular dividends often make up for this. In rare cases, companies will issue shares instead of a cash payout and this is known as scrip dividend issue. High-growth companies rarely offer dividends because all of their profits are reinvested to help sustain the higher than average growth rate. For instance, Apple Computers, a well renowned technology company last declared a dividend in December 1995 and only paid a dividend in 2012. Since then the share price of Apple Computers has seen a phenomenal growth which got more pronounced after 2009 when it rose from US$100 to about US$600 per share earlier in 2012. It is now one of the most capitalised stocks in the world with a market February 2013 Page 31
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