Gross Profitability Ratio – Qualitative Analysis

The Gross Profitability Ratio is gaining credibility in value investing circles because it provides valuable and predictive qualitative analysis when combined with valuation metrics. Some analysts argue it is the single best qualitative metric with which to compare multiple stocks (particularly within the same industry) that have already been determined to be bargains.

...
Read More.

Dividend Coverage Ratios: How Safe is Your Dividend?

Dividend Coverage Ratios allow analysts to evaluate the safety of a company’s dividend. Many investors concentrate on the dividend yield but don’t give sufficient attention to the safety of that dividend.

In the long run companies must create enough cash flow to pay expenses, invest in the future (capital expenditures), service their debt (if any), and return money to shareholders.

...
Read More.

Dividend Yield: Definition, Calculation, & Relationship

Dividend yield is the annual dividend per share of a company compared to the price of the stock expressed as percentage. In other words it tells you the percentage dividend return the stock owner receives on the current price of a stock.

The dividend yield has historically provided approximately one-half of long term total stock market returns to investors. It’s a little less than one-half for those who take their dividend and little over one-half for those who reinvest their dividends.

...
Read More.

Dividend Payout Ratio vs. Cash Dividend Payout Ratio

Dividend Payout Ratios provide us valuable information on how much money a company is returning to shareholders and their ability to pay and increase the dividend. One of these ratios is far superior to the other.

The Dividend Payout Ratio and the Cash Dividend Payout Ratio are compared to find out which is better at providing pertinent information to differentiate between various dividend paying companies.

...
Read More.

Net Financial Debt and Ratios: Analyzing Leverage & Risk

Net Financial Debt and its ratios are an effective and efficient metric when analyzing companies. These metrics are more important than ever because of the corporate trend to leave cash overseas and borrow domestically.

The balance sheet is the foundation from which a company operates its business. A company’s liquidity and the leverage used play a big role in the success or failure of a business. Net Financial Debt is a critical metric for investment analysis.

...
Read More.

Altman Z-Score Formula – Screening For Bankruptcy Risk

As value investors, one of our most important rules is to avoid incurring large losses. There are two easy ways to subject yourself to possible large losses; buy stocks for more than they’re worth, and buy stocks of companies that go bankrupt. The Altman Z-Score is a formula of 5 basic financial ratios to help determine the financial health of a company. In particular, it is a probabilistic model to screen for bankruptcy risk of a company.

...
Read More.

Types of Cash Flow and Cash Flow Calculations Guide

Are you ever confused by the different types of cash flow for investment analysis? There are too many cash flow calculations for most of us to have in memory. I know I get them confused and I’m a seasoned investor.

I believe you will find this a useful guide to the different types of cash flow and cash flow calculations, along with practical step by step comparisons and uses for each metric.

...
Read More.

Working Capital and Working Capital Calculations

Working capital is an important measure of a company’s operating liquidity. The working capital ratio (a.k.a current ratio) is an indicator of the ability of the company to meet its short term obligations.

Working capital calculations such as Net Current Asset Value (NCAV) and Net Net Working Capital (NNWC) provide valuable metrics with which to measure against price in order to identify bargain stocks.

...
Read More.

Geometric Average vs. Arithmetic Average: Which is Correct For Investment Returns?

Examples demonstrate that volatility lowers your investment returns. Arithmetic and geometric averages serve different purposes and only geometric averages will accurately reflect compounded investment returns.

Even small differences in investment returns can make huge differences in results over long periods of time. The consequence is investors need to put additional emphasis on the amount of volatility they are willing to accept. It may be that you can increase your long term investment returns by taking LESS risk!

...
Read More.