The Financial Times Guide to Using the Financial Pages, 6th Edition

18

Company and investor lives: the key performance ratios

by Ken Langdon*

“I am a better investor because I am a businessman, and a better businessman because I am an investor.”

Warren Buffett

“Because there is so much noise in the world, people adopt rules of thumb.”

Fischer Black

• Seven ratios – four financial ratios and three shareholder ratios – can help investors to evaluate the performance of a company.
• Gearing compares the amount of money in shareholders’ funds with the company’s liabilities. The higher the ratio, the more likely that its liabilities will become a burden and dividends will be reduced.
• Income gearing – the ratio of interest payable to the profits out of which interest is paid – gives an indication of the company’s ability ...