A financial professional (securities analyst) who has expertise in evaluating securities and concludes with "buy", "sell" or "hold" recommendations.
Total sales or revenues generated per dollar of assets. The Asset Turnover ratio is an indicator of the efficiency with which a company is deploying its assets. Calculated as Sales or Revenues divided by Total Assets. Generally speaking, the higher the ratio, the better it is, since it implies the company is generating more revenues per dollar of assets.
While an earnings per share (EPS) value can be easily manipulated to appear more positive than it really is by legal accounting tricks, cash is more difficult to alter, resulting in what some analysts believe is a more accurate value of the strength and sustainability of a particular business model. Cash Flow Per Share is calculated as (Operating Cash Flow – Dividends) / Common Shares outstanding.
Changes in analysts’ estimates of a public company. Generally, analysts give a consensus for a company’s earnings per share and revenue. The size of the company and the number of analysts covering it will dictate the size of the pool from which the estimate is derived.
Business term used to describe the segments of a company's business that it considers to be normal, and expects to operate in for the foreseeable future.
It’s a liquidity measures and shows a company's ability to pay short-term obligations. Calculated by dividing Total Current Assets by Total Current Liabilities. The higher the ratio, the more liquid the company is.
Date of today minus 1 day (yesterday).
This ratio shows the proportion of a company's assets, which are financed through debt and calculated by dividing a company’s total liabilities by total assets. If the ratio is less than one, most of the company's assets are financed through equity. If the ratio is greater than one, most of the company's assets are financed through debt. The higher the ratio, the greater risk will be associated with the firm's operation.
A financial ratio indicating the relative proportion of shareholder equity and debt used to finance a company’s assets. Closely related to leveraging, the ratio is also known as risk, gearing or leverage.
Cash payment made to shareholders and authorized by the board of directors. Dividends are usually issued by companies that will not reap significant growth by reinvesting profits, and so instead choose to return funds to shareholders in the form of a dividend. Companies may also issue dividends in order to attract income investors, who are looking for a steady source of income, and which can be reliable long-term holders of company shares.
The portion of earnings paid out to shareholders in dividends. Calculated as dividend per share divided by earnings per share. A reduction in dividends paid is generally a bad sign about the prospects. A stable dividend payout ratio typically indicates a solid company.
Shows how much a company pays out in dividends each year relative to its share price. Calculated by dividing the annual dividend per share by the current share price and then multiplying by 100.
The EPS for the most recent 12-month period divided by the current market price per share. As the inverse of the P/E ratio, it shows the percentage of each dollar invested in the stock earned by the company.
A measurement of a company's operating profitability. Calculated by Earnings Before Interest and Tax (EBIT) divided by total sales revenue.
A measurement of a company's operating profitability. Calculated by Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) divided by total sales revenue. Because EBITDA excludes depreciation and amortization, EBITDA margin can provide an investor with a cleaner view of a company's core profitability.
A company's profit divided by its number of outstanding shares. If a company earns $2 million per year and has 2 million shares outstanding, its EPS would be $1 per share.
Gives a good picture of the profitability growth rate. Small young companies typically growth faster than older established ones.
A financial ratio that indicates the relative proportion of equity used to finance a company’s assets.
The estimate of a financial analyst for a company's future earnings per share after his proper analysis.
Earnings revisions by financial analysts have been a successful quantitative factor with strong performance for decades. History shows that changes in earnings expectations are highly correlated to stock price movements. However, in today's increasingly efficient markets, exploiting this anomaly has become more difficult and now requires more advanced strategies.
Number of shares available for investing of a particular stock. Calculated by starting with a firm’s total outstanding shares and subtracting a) closely-held shares (major shareholders and employee) and b) restricted stock (insider shares that cannot be traded because of a temporary restriction such as the lock-up period after an initial public offering). A stock with a small float will generally be more volatile than a stock with a large float, apart from having limited liquidity and wider bid-ask spread.
The financial world splits up its calendar into four quarters, each three months long. If January to March is the first quarter, April to June is the second quarter, and so on, though a company's first quarter does not have to necessarily begin in January.
A measure of how much cash a business generates after accounting for capital expenditures such as buildings or equipment. This cash can then be used for expansion, dividends, reducing debt, or other purposes. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products, make acquisitions, pay dividends and reduce debt. FCF is calculated as Operating Cash Flow minus Capital Expenditure.
Financial or fiscal years are the same thing. However, the main difference is that professionals tend to use the term fiscal year in regards to a specific accounting period.
The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold by a company. Calculated by sales revenues minus cost of goods sold, then divided by the total sales revenue. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.
Entities with large amounts to invest, such as investment companies, mutual funds, brokerages, insurance companies, pension funds, investment banks and endowment funds. Institutional investors are covered by fewer protective regulations because it is assumed that they are more knowledgeable and better able to protect themselves. They account for a majority of overall volume.
Calculated by dividing the inventory balance at the end of a month by the total sales for the same month. It identifies recent increases in inventory and will help to predict early cash flow problems related to the business’s inventory.
A way to determine a company's leverage or risk. Calculated by taking the company's long-term debt and dividing by the total value of its shares. The greater a company's leverage, the higher the ratio and greater the risk because it has more liabilities and less equity.
Determines the degree of reliance by a firm on long-term debt to finance its day-to-day operations. Calculated by dividing long-term debt by working capital.
A company's total equity valuation in millions of a relevant currency. Calculated by multiplying the current Share Price by the current number of Shares Outstanding.
The rate of acceleration of the price of a stock. It compares the price today with the price x periods ago. A higher number means a faster speed — and momentum is all about speed. The idea of momentum is that the price is more likely to keep moving in the same direction than to change directions. It is calculated by dividing today’s closing price by the close a certain number of days ago (e.g. 5) and multiplied by 100. M = (Price Today/Price Five Days Ago) x100. If today’s price is equal to the price five days ago, the centreline now reads 100, meaning that the new price is equal to 100 percent of the price five days ago, which is the same as saying that there is zero change between the two prices. Assume that a stock price is rising $1 each day over 5 days. On Day 6, if you use the rate-of-change division method, the price today is $16 and the price five days ago was $11, so your calculation would look like this: M = (16/11) x 100 = 145.45. The momentum indicator can move up or down only if the price is accelerating or decelerating.
A company's total earnings or profit. Calculated by taking revenues and adjusting for the cost of doing business, depreciation, interest, taxes and other expenses. Often referred to as "the bottom line" since net income is listed at the bottom of the income statement.
Shows how much of each dollar earned by the company is translated into profits. Calculated by dividing net profits by revenues.
Securities that have been issued and sold on a market to the public for the first time. New issues are sometimes referred to as primary shares or new offerings. The term does not necessarily refer to newly issued stocks, although initial public offerings are the most commonly known new issues. Securities that can be newly issued include both debt and equity.
Also known as Return on Sales (ROS). Calculated as operating profit (amount left over after the variable costs of production such as wages, and raw materials have been paid) divided by total sales.
Gross income (revenue minus the cost of goods sold) minus other operating expenses and then depreciation. Operating income is typically a synonym for earnings before interest and taxes (EBIT).
Shows the percentage increase in operating income of a company.
A company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares (owned by the company’s officers and insiders).
A ratio used to compare a stock's market valuation to its (tangible) book value. The book value is calculated by deducting intangible assets and liabilities from total assets. The ratio is calculated by dividing the current closing price of the stock by the latest book value per share. A lower ratio could mean that the stock is undervalued but could also mean that something is fundamentally wrong with the company.
This ratio is similar to the P/E ratio except that the price/cash flow ratio (P/CF) is seen by some as a more reliable basis than EPS. The argument for using cash flow over earnings is that cash flow is not easily manipulated by using legal accounting tricks (amortisation, etc.). A low (single digit) ratio indicates a stock is undervalued, while a higher ratio may suggest potential overvaluation.
This is the primary valuation ratio (also called “PE-ratio”) used by most equity investors. It is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. A high P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with a lower P/E ratio. The reciprocal of the P/E ratio is known as the earnings yield.
An indicator of the value placed on each dollar of a company’s sales or revenues. Calculated by dividing the company’s market capitalization by its total sales. A low ratio may indicate possible undervaluation, while a ratio that is significantly above the average may suggest overvaluation.
P/E ratio divided by / (5yr) average EPS growth. A valuation metric for determining the relative trade-off between the price of a stock, earnings generated per share (EPS) and the company’s expected growth.
P/E ratio divided by / ((5yr) average EPS growth + (5yr) average Dividend Yield). A valuation metric for determining the relative trade-off between the price of a stock, earnings generated per share (EPS), dividend yield and the company’s expected growth. The PEGY ratio is used instead of the PEG ratio if the stock tends to have a strong dividend payout.
A company’s earnings before tax as a percentage of total sales or revenues. The higher the pre-tax profit margin, the more profitable the company.
Research and development (R&D) consists of activities that a business chooses to conduct that may lead to the development of new products or procedures, or to the improvement of existing products and procedures.
Relative strength calculates which stocks are the strongest performers, compared to the overall market. The scale ranges from 1 (lowest) to 99 (highest). Relative strength is a "buy high, sell higher" approach that assumes a stock whose price has been rising will continue its upward trajectory.
A change in the direction of a price trend also called trend reversal or correction. On a price chart, reversals undergo a recognizable change in the price structure. An uptrend, which is a series of higher highs and higher lows, reverses into a downtrend by changing to a series of lower highs and lower lows. A downtrend, which is a series of lower highs and lower lows, reverses into an uptrend by changing to a series of higher highs and higher lows.
ROA gives an idea as to how efficient management is at using its assets to generate earnings. Indicates how profitable a company is relative to its total assets. Calculated by dividing a company's annual earnings by its total assets.
A profitability ratio that measures the return an investment generates for capital contributors; i.e. bondholders and stockholders. The return on capital indicates how effective a company is at turning capital into profit.
Reveals how much profit a company earned in comparison to the total amount of shareholder equity on the balance sheet. Calculated by dividing Net Income by Shareholders Equity.
Annualized growth rate of revenue or sales expressed as a percentage. Calculated by subtracting annualized net sales of previous period from the annualized net sales of the current period then dividing by the annualized net sales of previous period.
The maximum price one should pay for a stock and still receive a certain specified minimum return (15% in our screen). It is calculated as:
Sticker price = future market price / (1.15)^10
where future market price = future P/E * estimated future EPS. Here, future P/E is obtained by determining the lower of a default P/E and 5-year average historical P/E. The default P/E used in this setting is twice the rule #1 growth rate, which in turn is obtained by determining the lower of the historical equity compound average growth rate and estimated EPS growth rate.
The estimated future EPS is calculated as
estimated future EPS = TTM EPS * (1+rule #1 growth rate/100)^10
Calculating the sticker price for Google (GOOG):
1) EPS-continuing 12m ($/share): $19.39
2) Rule #1 growth rate: 24.8% (The lower of hist. equity and estim. EPS growth rates)
Hist. equity compound avg growth rate 24.8%
Est. EPS growth rate (I/B/E/S) 56.63%
3) Future EPS (in 10 years) ($/share): $177.9
EPS Y10 = EPS 12m x [1 + (Rule #1 growth rate ÷ 100)] ^10
EPS Y10 = 19.39 x [1 + (24.81 ÷ 100)] ^10 = 177.9
4) Estimated future P/E (x): 24.3 (The lower of the default P/E and the avg. hist. P/E)
Default P/E (Rule #1 growth rate x 2): 49.62
Avg. 5-yr historical P/E: 24.3
5) Future market price: $4323.46
Future market price = Future EPS x estim. future P/E
Future market price = 177.9 x 24.3 = $4323.46
6) Sticker Price: $1068.69
Sticker price = Future market price ÷ [1+ (Min. required ann. ROI ÷ 100)] ^ 10
Sticker price = $4323.46 ÷ [1 + (15 ÷ 100)] ^10 = $1068.69
Current price must be 50% or less of sticker price to provide adequate margin of safety
Current stock price (21st Jan 2015 close) $520.39 < $534.35 (50% of Sticker price $1068.69)
Therefor GOOG would be a buy!
The Standard & Poor’s Earnings and Dividend Ranking System measures the historical growth of earnings and dividends. The starting point in the ranking process is a computerized scoring system based on per-share earnings and dividend records over the most recent 10-year period, a time period sufficient to measure a company’s performance under varying economic conditions. The system measures growth, stability within the trendline, and cyclicality. From these, scores for earnings and dividends are determined. The system makes allowances for company size, since large companies have certain inherent advantages over smaller ones.
Once computed, a final score is measured against a scoring matrix. The results are reviewed and sometimes modified, because no mechanical system can evaluate the many special considerations that could affect a company’s earnings and dividend record. The Standard and Poor’s Earnings and Dividend Ranking System has seven grades:
D signifies a company in reorganization, whereas NR (no ranking) is given to common stocks with insufficient historical data or because the stock is not amenable to the ranking process.
Measures the actual rate of return of an investment or a pool of investments over an evaluation period. Total return includes interest, capital gains, dividends and distributions over a given period of time.
A company’s overall sales. Calculated by adding all sales invoices without including any operating expenses, cost of goods sold, payment of taxes, or any other charge.
Trailing Twelve Month: the timeframe of the past 12 months used for reporting financial figures. A company’s trailing 12 months is a representation of its financial performance for a 12-month period, but typically not at its fiscal year-end. Since quarterly reports rarely report on the company’s performance over the previous 12 months, TTM tends to be calculated manually or is found on various websites.
A measure for a firm's ability to meet its short-term obligations. Calculated by deducting current liabilities from current assets.