Welcoem to posts!!
in the future - u will be able to do some more stuff here,,,!! like pat catgirl- i mean um yeah... for now u can only see others's posts :c
When analyzing a company, what's your primary valuation ratio?
0 - 0
10 Cash Flow Ratios every investor NEEDS to know.
Measuring a company's cash flow is a crucial skill for every investor.
Free Cash Flow is generally calculated as cash from operations less capital expenditures (capex).
๐๐๐ = ๐๐ฎ๐๐ต ๐ณ๐ฟ๐ผ๐บ ๐ข๐ฝ๐ฒ๐ฟ๐ฎ๐๐ถ๐ผ๐ป๐ - ๐๐ฎ๐ฝ๐ฒ๐
The above formula is the base for all of the calculations below.
These 10 ratios will help you analyze every company's cash flow effectiveness and generation.
1. ๐๐ฟ๐ฒ๐ฒ ๐๐ฎ๐๐ต ๐๐น๐ผ๐ (๐๐๐) ๐ฝ๐ฒ๐ฟ ๐๐ต๐ฎ๐ฟ๐ฒ
Cash available to shareholders after expenses, divided by shares.
FCF per share = FCF / Shares Outstanding
2. ๐๐ฟ๐ฒ๐ฒ ๐๐ฎ๐๐ต ๐๐น๐ผ๐ ๐ฝ๐ฒ๐ฟ ๐๐ต๐ฎ๐ฟ๐ฒ ๐ด๐ฟ๐ผ๐๐๐ต
Annual increase in cash available after expenses, per share.
FCF per share growth = (FCF Year 1 - FCF Year 0) / FCF Year 0
3. ๐๐ฟ๐ฒ๐ฒ ๐๐ฎ๐๐ต ๐๐น๐ผ๐ ๐ฌ๐ถ๐ฒ๐น๐ฑ
Annual increase in cash available after expenses, per share.
FCF Yield = FCF per share / Share Price
4. ๐๐ฟ๐ฒ๐ฒ ๐๐ฎ๐๐ต ๐๐น๐ผ๐ ๐ ๐ฎ๐ฟ๐ด๐ถ๐ป
FCF margin: Sales proportion remaining as free cash flow post-expenses.
FCF Margin = Free Cash Flow / Revenue
5. ๐๐ฟ๐ฒ๐ฒ ๐๐ฎ๐๐ต ๐๐น๐ผ๐ ๐๐ผ๐ป๐๐ฒ๐ฟ๐๐ถ๐ผ๐ป
Free cash flow conversion equals earnings percentage translated into actual cash.
FCF Conversion = Free Cash Flow / Net Income
6. ๐ฃ๐ฎ๐๐ผ๐๐ ๐ฅ๐ฎ๐๐ถ๐ผ
Dividends issued are divided by the companyโs net income.
Payout Ratio = Dividends / Net Income
7. ๐๐ป๐๐ฒ๐ฟ๐ฒ๐๐ ๐๐ผ๐๐ฒ๐ฟ๐ฎ๐ด๐ฒ ๐ฅ๐ฎ๐๐ถ๐ผ
Earnings ability to cover interest expenses adequately.
Intereset Coverage Ratio = EBIT(Earnings before Interest & Taxes) / Interest Expense Paid
8. ๐๐ผ๐ป๐ด-๐๐ฒ๐ฟ๐บ ๐๐ฒ๐ฏ๐ ๐๐ผ๐๐ฒ๐ฟ๐ฎ๐ด๐ฒ ๐ฅ๐ฎ๐๐ถ๐ผ
Earnings' capacity to cover long-term debt obligations.
Long-term Debt Coverage Ratio = Cash from Operations / Long-term Debt
9. ๐๐๐๐ฒ๐ ๐๐ณ๐ณ๐ถ๐ฐ๐ถ๐ฒ๐ป๐ฐ๐ ๐ฅ๐ฎ๐๐ถ๐ผ
Measures how effectively assets generate revenue.
Asset Efficiency Ratio = Cash from Operations / Total Assets
10. Net Debt to Free Cash Flow
Compares company's total debt minus cash to free cash flow.
Net Debt to FCF = Net Debt / FCF
2 - 0
How much emphasis do you place on a company's management team?
0 - 0
Liquidty and solvency aren't the same thing.
They are easy to mix up.
Here are the similarities and differences:
๐ฃ๐ฟ๐ผ๐ ๐ผ๐ณ ๐๐ถ๐พ๐๐ถ๐ฑ๐ถ๐๐ ๐ณ๐ผ๐ฟ ๐๐ป๐๐ฒ๐๐๐ผ๐ฟ๐
1. ๐๐ป๐ต๐ฎ๐ป๐ฐ๐ฒ๐ฑ ๐๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น ๐ฆ๐๐ฎ๐ฏ๐ถ๐น๐ถ๐๐
2. ๐๐น๐ฒ๐
๐ถ๐ฏ๐ถ๐น๐ถ๐๐ ๐ถ๐ป ๐ข๐ฝ๐ฒ๐ฟ๐ฎ๐๐ถ๐ผ๐ป๐
3. ๐๐ป๐๐ฒ๐๐๐ผ๐ฟ ๐๐ผ๐ป๐ณ๐ถ๐ฑ๐ฒ๐ป๐ฐ๐ฒ
4. ๐๐ผ๐๐ฒ๐ฟ ๐ฅ๐ถ๐๐ธ ๐ผ๐ณ ๐๐ฎ๐ป๐ธ๐ฟ๐๐ฝ๐๐ฐ๐
5. ๐๐ฒ๐๐๐ฒ๐ฟ ๐ฅ๐ฒ๐๐ฝ๐ผ๐ป๐๐ฒ ๐๐ผ ๐ ๐ฎ๐ฟ๐ธ๐ฒ๐ ๐๐ผ๐ป๐ฑ๐ถ๐๐ถ๐ผ๐ป๐
๐๐ผ๐ป๐ ๐ผ๐ณ ๐๐ถ๐พ๐๐ถ๐ฑ๐ถ๐๐ ๐ณ๐ผ๐ฟ ๐๐ป๐๐ฒ๐๐๐ผ๐ฟ๐
1. ๐ฃ๐ผ๐๐ฒ๐ป๐๐ถ๐ฎ๐น ๐ณ๐ผ๐ฟ ๐๐ผ๐๐ฒ๐ฟ ๐ฅ๐ฒ๐๐๐ฟ๐ป๐
2. ๐ ๐ถ๐๐น๐ฒ๐ฎ๐ฑ๐ถ๐ป๐ด ๐๐ถ๐ป๐ฎ๐ป๐ฐ๐ถ๐ฎ๐น ๐๐ฒ๐ฎ๐น๐๐ต ๐๐ป๐ฑ๐ถ๐ฐ๐ฎ๐๐ผ๐ฟ๐
3. ๐ข๐ฝ๐ฝ๐ผ๐ฟ๐๐๐ป๐ถ๐๐ ๐๐ผ๐๐
4. ๐๐ป๐ณ๐น๐ฎ๐๐ถ๐ผ๐ป ๐ฅ๐ถ๐๐ธ
๐ฑ. ๐ฃ๐ผ๐๐๐ถ๐ฏ๐น๐ฒ ๐ก๐ฒ๐ด๐ฎ๐๐ถ๐๐ฒ ๐ฃ๐ฒ๐ฟ๐ฐ๐ฒ๐ฝ๐๐ถ๐ผ๐ป
Pros of Solvency for Investors
1. ๐๐ฒ๐ฏ๐ ๐ฆ๐ฒ๐ฐ๐๐ฟ๐ถ๐๐
2. ๐ฆ๐๐๐๐ฎ๐ถ๐ป๐ฎ๐ฏ๐น๐ฒ ๐ข๐ฝ๐ฒ๐ฟ๐ฎ๐๐ถ๐ผ๐ป๐
3. ๐๐ป๐๐ฒ๐๐๐บ๐ฒ๐ป๐ ๐๐๐๐ฟ๐ฎ๐ฐ๐๐ถ๐ผ๐ป
4. ๐๐ฟ๐ฒ๐ฑ๐ถ๐๐๐ผ๐ฟ๐๐ต๐ถ๐ป๐ฒ๐๐ ๐๐๐๐๐ฟ๐ฎ๐ป๐ฐ๐ฒ
5. ๐๐ผ๐ป๐ด-๐๐ฒ๐ฟ๐บ ๐ฉ๐ถ๐ฎ๐ฏ๐ถ๐น๐ถ๐๐
Cons of Solvency for Investors
1. ๐ ๐ถ๐๐๐ฒ๐ฑ ๐ข๐ฝ๐ฝ๐ผ๐ฟ๐๐๐ป๐ถ๐๐ถ๐ฒ๐
2. ๐๐ผ๐ป๐๐ฒ๐ฟ๐๐ฎ๐๐ถ๐๐ฒ ๐๐ฟ๐ผ๐๐๐ต
3. ๐๐๐๐ฒ๐ ๐จ๐ป๐ฑ๐ฒ๐ฟ๐๐๐ถ๐น๐ถ๐๐ฎ๐๐ถ๐ผ๐ป
4. ๐๐ถ๐ด๐ต ๐๐ถ๐พ๐๐ถ๐ฑ๐ถ๐๐
5. ๐ฆ๐น๐ผ๐ ๐๐
๐ฝ๐ฎ๐ป๐๐ถ๐ผ๐ป
6 - 0
Valuing companies can be challenging.
Using ratios is a quick, easy way to filter.
Use these 7 ratios to find attractive companies.
Price-to-Earnings
P/E Ratio = Market cap / earnings (net income)
Most used ratio in valuation
Buffett loved companies with P/E < 15
Price-to-Sales
P/S Ratio = Market cap / Sales (revenues)
Valuable ratio for growing, not quite profitable companies.
Price-to-Gross Profit
P/Gross Profit = Market cap / Gross profit
Underrated ratio, can tell you how efficiently the company's core operations.
Price-to-EBITDA
P/EBITDA = Market cap / EBITDA
EBITDA = Earnings Before Interest, Taxes and Depreciation
Price-to-EBIT
P/EBIT = Market cap / Earnings Before Interest & Taxes
Focuses on operating profit, excluding interest and taxes, offering insights into core business performance.
Price-to-Book
P/B Ratio = Market cap / Shareholders' Equity
Perfect for use with banks, insurance, and other financials.
Price-to-Free Cash Flow
P/FCF = Market cap / Free Cash Flow
One of my favorite ratios, comes from the cash flow statement, and is a great substitue for P/E ratio.
Regrettably, there's no magic bullet or formula to determine if a stock is cheap or expensive.
It's not as simple as categorizing a stock as expensive with a P/E ratio over 25 or cheap with a P/S ratio under 5. Each company presents its unique situation, and we must treat them as such.
We also have to consider the lifecycle and where each company falls on that spectrum.
Effective comparisons involve considering:
- company's historical performance
- against S&P 500 averages
- comparing peers
By using these considerations we gather a more comprehensive understanding of whether the stock is undervalued or overvalued.
8 - 0
Which do you like the best?
0 - 0
4 Ratios every investor should know:
Want to find quality companies?
Try these profitability ratios.
Let's dive in.
Use these ratios to determine:
- Profitability
- Efficiency
- Moats
Gross margin > 40%
EBIT margins > 20%
Net Income margin > 20%
FCF margin > 10%
1๏ธโฃ Gross Margin
Gross Margin = Gross profit / Revenues
Buffett likes a gross margin of > 40%.
Could indicate a moat + pricing power if the margin grows or remains steady.
2๏ธโฃ EBIT Margin
EBIT Margin = EBIT / Revenues
Great starting point for FCF and NOPAT
Look for margins > 20%
3๏ธโฃ Net Income Margin
Net Income Margin = Net Income / Revenues
Buffett likes net income margins > 20%
Also known as net profits, earnings, or the bottom line.
4๏ธโฃ Free Cash Flow Margin
FCF Margin = FCF / Revenues
Look for FCF margins > 10% for quality companies.
6 - 0
Breaking Down Goodwill
Goodwill is an intangible asset.
It arises when a company buys another at a premium over its identifiable net assets.
This premium reflects a company's brand, customer ties, and reputation.
You can find goodwill listed on the balance sheet, typically under the "Intangible Assets" section.
Goodwill has two key terms.
Impairment is when the carrying amount exceeds the recoverable amount.
Acquisition premium is the extra paid over fair market value.
Another key term is intangible asset, which, like goodwill, lacks physical substance but holds value.
Goodwill has five parts:
โข brand recognition
โข customer relationships
โข IP
โข reputation
โข employee expertise
These factors collectively enhance a company's value and competitive edge.
For investors, understanding goodwill is crucial.
It shows a company's true value, beyond its assets.
It helps assess risks, like impairment charges, and evaluates acquisitions.
A high goodwill value may show a strong market position.
But, it requires a check for possible overvaluation.
In summary, goodwill is a key intangible asset.
It reflects a company's ability to generate future profits.
Thus, it is vital in investment decisions.
7 - 0
Do you use a DCF to value companies?
0 - 0
EBITDA Broken Down:
What is EBITDA? While it is a controversial topic in finance, it does have it's uses.
I prefer free cash flow but it's helpful to compare companies.
EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
It's a popular financial metric used to evaluate a company's operational performance.
Common terms related to EBITDA include "Operating Profit," "Cash Flow Proxy," and "Earnings Indicator."
๐๐ผ๐บ๐ฝ๐ผ๐ป๐ฒ๐ป๐๐ ๐ผ๐ณ ๐๐๐๐ง๐๐:
1. ๐๐ฎ๐ฟ๐ป๐ถ๐ป๐ด๐ - Net income or profit.
2. ๐๐ฒ๐ณ๐ผ๐ฟ๐ฒ ๐๐ป๐๐ฒ๐ฟ๐ฒ๐๐ - Excludes interest expenses, providing a clearer view of operating performance.
3. ๐ง๐ฎ๐
๐ฒ๐ - Excludes taxes, focusing on operational efficiency.
4. ๐๐ฒ๐ฝ๐ฟ๐ฒ๐ฐ๐ถ๐ฎ๐๐ถ๐ผ๐ป & ๐๐บ๐ผ๐ฟ๐๐ถ๐๐ฎ๐๐ถ๐ผ๐ป - Non-cash expenses from a reduction in the value of assets. These are tangible and intangible.
๐๐ผ๐ ๐ถ๐'๐ ๐๐ฎ๐น๐ฐ๐๐น๐ฎ๐๐ฒ๐ฑ:
Two common formulas are:
1. ๐๐๐๐ง๐๐ = Net Income + Interest + Taxes + Depreciation + Amortization
2. ๐๐๐๐ง๐๐ = Operating Income + Depreciation + Amortization
EBITDA Margin Formula:
๐๐๐๐ง๐๐ ๐ ๐ฎ๐ฟ๐ด๐ถ๐ป = (EBITDA / Total Revenue) x 100
๐ฃ๐ฟ๐ผ๐:
1. Comparability: EBITDA removes the effects of financing and accounting decisions. So, it allows for comparison across companies.
2. Cash Flow Insight: It serves as a proxy for cash flow from operations, highlighting core profitability.
๐๐ผ๐ป๐:
1. Excludes Capital Expenditures: EBITDA doesn't account for capital expenses, potentially overstating financial health.
2. Ignores Working Capital Changes: It may not accurately reflect changes in working capital, affecting the company's actual cash flow.
EBITDA provides a comprehensive view of a company's operational efficiency, but investors should also consider its limitations.
8 - 0
Learn how to invest like Warren Buffett using his 4 pillars at earnings123.com.