MONITORING YOUR INVESTMENT AS AN INVESMENT CLUB IN ZAMBIA

33. How do I monitor my investment?
It is very easy to keep track of one’s investments on the stock exchange. Closing share prices can be obtained freely from the stock exchange or its website. They are also aired daily on TV.
34. What is dividend per share (DPS) and how is it calculated?
Dividend per share (DSP) is the dividend paid per each company share. It is calculated by dividing the dividend paid by a company by the total number of shares a company has in issue. If for example a company has decided to pay a dividend of K1,000,000 and it has 500,000 shares in issue, then its DPS is K1,000,000/500,000 shares = K2/share. It must be noted that DPS takes into account all of the dividends paid by a company during the Financial Year.
35. What is the price/earnings (p/e ratio) and why is it a useful tool for monitoring one’s investments in shares?
The p/e ratio is the result of dividing the share price of a company by its earnings per share (EPS); EPS is arrived at by dividing a company’s profit after tax by the number of shares a company has in issue. If for example, a company has made a profit after tax of K1,000,000 and has 1,000,000 shares in issue then its EPS=K1. If the share price of the same company is K5 on a given trading day, then the p/e ratio of the company is 5.
The p/e ratio is officially defined as the payback period from investing in a company’s shares. However, it can also be used as a measure of whether one’s investment is undervalued, valued correctly or overvalued. In the Zambian context, p/e ratios of 10-12 are considered about right for the stock market. If therefore the p/e ratio is less than this amount, it may be a good idea to hold onto a share because its value may rise soon. If it is greater than this amount, it may be worthwhile to consider selling the shares because they may fall in price in future on account of being overvalued. However, investors should consult their broker before making this decision.
36. What is divided yield and how is it calculated?
Dividend yield (DY) is the dividend return that one obtains from holding a share at a given share price. It is calculated in percentage terms. It is arrived at by dividing DPS by a company’s last share price. If for instance a company paid a dividend of K10 and its last reported share price was K100, then its DY will be reported as being 10%.
37. How is the return on a debt security calculated?
The return on a debt security-also known as its yield-is arrived at by adding the difference between its face value and its sale price to its coupon/interest rate then dividing that sum by the debt security’s sale price. For example, if a debt security had a face value of K100 and a coupon rate of 10% and one paid K98 for it,i.e. bought it as a discount of K2, one’s yield for the debt security would be:
2 + 10 / 98 = 12/ 98 =12.2%
“K2”is the difference between the face value and what was paid for the debt security, i.e. K100-K98, 10% is the rate of interest on the debt security and K98 is what was paid for the debt security.

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