Active learning ideas
Investment ratios allow students to evaluate a company from the perspective of a shareholder or potential investor. This topic covers Earnings Per Share (EPS), Price-Earnings (P/E) Ratio, and Dividend Yield. In Singapore, where many individuals participate in the stock market, these ratios are essential for making informed investment decisions. Students learn how market price relates to accounting earnings and how to interpret investor sentiment.
Activity 01
Students are given a virtual budget to 'invest' in three SGX-listed companies. They must calculate the P/E ratios and dividend yields for their choices and justify their portfolio strategy based on these investment ratios.
How do investors use the price-earnings ratio?
Activity 02
Students are shown two companies: one with a P/E of 10 and another with a P/E of 30. They individually brainstorm why the market might value the second company more highly, then pair up to share their theories on growth expectations.
What does dividend yield indicate about a company's maturity?
Activity 03
Groups compare the dividend yields of a 'Growth' stock (like a tech firm) and a 'Value' stock (like a REIT). They discuss why different types of investors might prefer one over the other and present their findings.
How do market expectations influence share prices?
A few notes on teaching this unit
Watch Out for These Misconceptions
A low P/E ratio always means a stock is a 'bargain'.
A low P/E could also mean the market expects the company's profits to decline in the future. Peer discussion of 'value traps' helps students understand that ratios must be interpreted alongside qualitative factors and industry trends.
Earnings Per Share (EPS) is the same as the dividend paid per share.
EPS is the total profit attributable to each share, while the dividend is only the portion of that profit actually paid out to shareholders. Using a 'profit pie' visual helps students see that some earnings are kept as retained earnings for future growth.
Methods used in this brief
Profitability and Efficiency Analysis
Calculate and interpret profitability and efficiency ratios to assess business performance. Evaluate how well a company utilises its resources to generate returns.
8 methodologies
Liquidity and Solvency Analysis
Assess a company's ability to meet its short-term and long-term obligations. Analyse the working capital cycle and gearing ratios.
8 methodologies
Limitations of Financial Analysis
Critically evaluate the limitations of relying solely on financial ratios for decision-making. Consider non-financial factors and the impact of differing accounting policies.
8 methodologies