Balance Sheet Example

The following is the profit and loss appropriation account of a company whose issued share capital consists of 100,000 £110% preference shares and two million 25p ordinary shares, which are priced at 42p on the market.

Long-term investments

Net profit before tax Corporation tax

Net profit after tax Dividend on

preference shares


Interim ordinary


Proposed final







29,400 (net)

74,400 (net) 103,800 (=£148,285

Transfer to Reserve gross)

account 153,100


It will be seen that the preference shareholders must be paid their dividend out of taxed profits before the amount of profit earned for ordinary shareholders is arrived at. So earned for ordinaries is £256,900, not £263,900.

256,900 2,000,000

Earnings per share 12.845p net

Total dividend per 103,800

share 2,000,000

Dividend yield 5.19 x 100



P/E ratio3.27


The shares appear to be underpriced.

Price/Earnings Ratio

Some of the ratios of balance sheet and profit and loss figures are published as a matter of routine in the financial press - for of course it is the ratios between certain figures in the accounts that are significant for investors, rather than merely the absolute size of such figures. For example, each Saturday the better newspapers quote for each share, as well as the closing market price, the dividend yield (percentage of gross dividend to share price), and also the number of times the dividend actually paid over the last year can be divided into the profits available for that dividend. This ratio... see: Price/Earnings Ratio

Personal And Business Finance 2018

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