A company’s fundamental value is influenced by factors such as its performance, growth prospects, underlying financials and positioning against peers.

Changes in such factors can result in the company’s fundamental value being re-rated. This re-rating is reflected in the company’s P/E and can occur to both the upside and downside.

An example of a re-rating is when a company’s growth business matures. Earnings change from strong growth to those more broadly experienced across the market. Growth businesses attract a comparatively high P/E driven by the expectation of strong future cash flows. Mature businesses approximate more closely to the market which is reflected in comparatively modest P/E’s.

Market Shares provides graphs and tables to assist in considering the fair P/E for a company.

Return on Equity (%)

• An evaluation of profit earned in relation to equity resources invested (the viewpoint of equity holders). It is calculated by dividing net profit before abnormal items by shareholders equity.

Net Tangible Assets

• Represents shareholders equity net of intangible assets, converting preference share capital and minority interest, divided by the number of ordinary shares as at the year end balance date.

Dividend Franking (%)

• This figure shows the percentage of the dividend which contains a dividend franking credit. This is also referred to as an imputation credit. It represents the proportion of the dividend on which the company has paid tax in Australia. If a company pays the full company tax rate, the dividends are fully (100%) franked. The credit may be claimed by you as a tax refund.

Book Value

• Represents what the shareholder owns of the company after netting total liabilities from total assets. It includes both tangible and intangible assets. It is measured by dividing shareholders equity by the number of shares issued as of the year end balance date.

Sales

• Sales are calculated by dividing operating revenue by the diluted weighted average number of ordinary shares on issue. Non-operating revenue, such as interest, is not included.