What is the Current Ratio and how to use it?

The Current Ratio (CR) is a “liquidity ratio” that measures a company’s ability to meet its short-term obligations. It is calculated by comparing the current assets to current liabilities. This ratio is used alongside the Quick Ratio to see the short-term obligations coming due within one year.

The Current Ratio explained. The Current Ratio (CR) is a “liquidity ratio” that measures a company’s ability to meet its short-term obligations. It is calculated by comparing the current assets to current liabilities. This ratio is used alongside the Quick Ratio to see the short-term obligations coming due within one year. The term “Current” refers… Continue reading →

What is the Debt-to-Equity ratio and how to use it?

The Debt-to-Equity ratio (D/E) is a “leverage ratio” that measures the weight of total debt and liabilities against total shareholder equity. A company’s financial leverage is an important metric to monitor as debt can make or sink companies.

The Debt-to-Equity Ratio explained. The Debt-to-Equity ratio (D/E) is a “leverage ratio” that measures the weight of total debt and liabilities against total shareholder equity. A company’s financial leverage is an important metric to monitor as debt can make or sink companies. It is an indirect way to assess the degree to which a company… Continue reading →

What is the Dividend Payout and how to use it?

The Dividend Payout Ratio (DPR) is a measure of the percentage of a company’s net income that is paid out to shareholders as dividends. When a company earns profits, it can either retain them to fund operations or distribute them among shareholders as dividends. The DPR is a crucial indicator of how much money a company pays out to investors, as this reduces the amount of cash it can use for expansion and growth.

The Dividend Payout Ratio explained. The Dividend Payout Ratio (DPR) is a measure of the percentage of a company’s net income that is paid out to shareholders as dividends. When a company earns profits, it can either retain them to fund operations or distribute them among shareholders as dividends. The DPR is a crucial indicator… Continue reading →

What is the Dividend Yield and how to use it?

The dividend yield (DY) is a financial ratio that measures the amount of cash that is paid out as a distribution to shareholders relative to the market value per share. A company earns profits, as shareholders we are entitled to a share of profits, and the dividend is our slice of that profit.

The Dividend Yield explained. The dividend yield (DY) is a financial ratio that measures the amount of cash that is paid out as a distribution to shareholders relative to the market value per share. A company earns profits, as shareholders we are entitled to a share of profits, and the dividend is our slice of… Continue reading →

What is the EPS and how to use it?

Earnings Per Share (EPS) is an important financial metric that determines how much of a company’s accounting profit is allocated to each common share outstanding. The earnings of a company is one of the most significant variables in shaping a stock price. The EPS in used in other key financial and valuation ratios.

The Earnings Per Share explained. Earnings Per Share (EPS) is an important financial metric that determines how much of a company’s accounting profit is allocated to each common share outstanding. The earnings of a company is one of the most significant variables in shaping a stock price. The EPS in used in other key financial… Continue reading →

What is the Earnings Yield and how to use it?

The Earnings Yield is a financial metric used to measure the indicative rate of return on a stock. It is calculated by dividing the company’s earnings per share by the stock price, which forms the Earnings Yield (E/P). This ratio is not commonly used for valuation, but it is an effective way to look at what sort of returns one can expect.

The Earnings Yield explained. The Earnings Yield is a financial metric used to measure the indicative rate of return on a stock. It is calculated by dividing the company’s earnings per share by the stock price, which forms the Earnings Yield (E/P). This ratio is not commonly used for valuation, but it is an effective… Continue reading →

What is the EV/EBITDA Multiple and how to use it?

The EV-to-EBITDA Multiple is a “valuation metric” used to measure the fair market value of a company. I value the EV/EBITDA ratio above the Price-to-Earnings ratio as the Enterprise Value and the EBITDA component tend to be a lot more in-depth than the price and the earnings alone. Using the total EV against the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) allows us to value similar companies side by side from the perspective of an acquirer.

The EV-to-EBITDA multiple explained. The EV-to-EBITDA Multiple is a “valuation metric” used to measure the fair market value of a company. I value the EV/EBITDA ratio above the Price-to-Earnings ratio as the Enterprise Value and the EBITDA component tend to be a lot more in-depth than the price and the earnings alone. Using the total… Continue reading →

What is the Enterprise Value and how to use it?

The Enterprise Value is a metric used to determine the total value of a company if it were to be purchased entirely. It is different from market capitalisation, which considers only the common equity of all shares. The EV provides a more accurate representation of a company’s actual value in terms of its total purchase price.

The Enterprise Value explained. The Enterprise Value is a metric used to determine the total value of a company if it were to be purchased entirely. It is different from market capitalisation, which considers only the common equity of all shares. The EV provides a more accurate representation of a company’s actual value in terms… Continue reading →

What is the Price-to-Book ratio and how to use it?

The price-to-book ratio is a “valuation metric” that measures the current market value of a company relative to its book value (also known as shareholders equity). The book value represents all the physical capital a company invests in, such as warehouses, computers, machinery, property, and inventory. The price-to-book (P/B) ratio is important because it helps investors understand whether a company’s market price seems reasonable compared to its balance sheet.

The Price-to-Book ratio explained. The price-to-book ratio is a “valuation metric” that measures the current market value of a company relative to its book value (also known as shareholders equity). The book value represents all the physical capital a company invests in, such as warehouses, computers, machinery, property, and inventory. The price-to-book (P/B) ratio is… Continue reading →

What is the Price-to-Cash Flow and how to use it?

The price-to-cash flow ratio is a “valuation metric” that measures a company’s stock price value relative to its per-share operating cash flow (the amount of cash it produces). The P/CF is a handy tool as it considers a company’s ability to generate cash flow from its operations while removing the impact of non-cash expenses such as depreciation and amortisation. This helps the ratio be more reliable as it minimises the exposure to manipulated accounting practices from earnings reported.

The Price-to-Cash ratio explained. The price-to-cash flow ratio is a “valuation metric” that measures a company’s stock price value relative to its per-share operating cash flow (the amount of cash it produces). The P/CF is a handy tool as it considers a company’s ability to generate cash flow from its operations while removing the impact… Continue reading →