Case study choosing shares
Barry decides which shares to buy
Barry wants to invest in shares and is trying to
decide between two companies (Company A and Company B) in the same
He starts his research by visiting the ASX website to get
up-to-date share prices.
Next he gets the annual reports from the company websites and
looks up their earnings per share (EPS) and dividends. He notes
that both these figures have been relatively stable in the
He works out their price earnings ratios (P/E ratios) for both
companies by dividing the share price by the EPS.
He works out the yields by dividing the dividend by the share
The diagram below shows Barry's calculations.
|Share price (a)
|P/E ratio (a/b)
Looking at the results, Barry concludes that Company A may be
better value for money because it has a lower P/E ratio. This may
lead to the share price rising over time. But Company A has a lower
yield, which means Company B could be a better investment if income
is important to him. These numbers, as well as other research about
the companies, help him make his decision.
Last updated: 31 Mar 2017