Final answer:
The ratio that indicates a company's income on a per share basis is called Earnings Per Share (EPS). To calculate it, one may use the present value of total profits divided by the number of shares. This measure helps investors understand the profitability of a company and the value of their shares.
Step-by-step explanation:
The ratio that indicates the amount of income earned by a company, expressed on a per share basis, is known as Earnings Per Share (EPS). When a company pays a dividend, it distributes a portion of its profits to its shareholders, the people who own shares in the firm. The dividend is typically a cash payment, and the amount each shareholder receives is proportional to the number of shares they own. For example, if a stock pays a dividend of $0.75 a share, and a person owns 85 shares, they would receive a total dividend of $63.75.
However, when it comes to valuing a company based on its earnings, present value (PDV) calculations may be used to determine a more accurate price per share. This involves adding up all the present values for profits received at different times, and then dividing by the number of shares. For instance, if the PDV of total profits is $51.3 million and there are 200 shares, then the price per share would be about $256,500. It's important to remember that in reality, expected profits are estimations and can be affected by many factors, including the chosen interest rate for discounting future profits to their present value.