Educational materials nr. 3
Hello everyone, who are interested in value investing.
This article is about metrics, based on Income Statement data. They are used for first-look analysis to understanding is this company good for investing. This metrics show over/undervaluation of company. Undervalued companies are good to investing.
Description of indicators:
PE – relation of stock price to net profit on stock. Indicate over/undervaluation of the company. Her critical meaning depends from sector of economic, in which works company.
PE without NRI – relation of stock price to net profit on stock, but do not include unusual profits from non-operational activity (selling part of assets, real estate and so on). If PE without NRI is equal PE – company have profits only from operational activity and is good signal.
Forward PE – consolidated meaning future PE from analytics.
PB – relation price of stock to the book value of stock. Measure of over/undervaluation of the company. If PB = 1, it is mean, that company have fair value. Usually PB is more than 1 and become 1 or lower only in crisis.
PS – relation price of stock to sales/revenue.
EV-to-EBIT, EV-to-EBITDA, EV-to-Revenue – another variant of metrics under/overvaluation of the company. Can be used instead PE or with PE.
Revenue – Or sales.
EBITDA – Income after paying COGS (Cost of goods saled), SG&A (selling, general and administrative expences) and before payment of D&A (depreciation and amortization), taxes and interest rates.
EBIT = net profit – EBITDA after payment D&A, taxes and interest rates.
Enterprise value (EV) – price of company at absorption by other company. EV = Market Capitalization + Debt + Preferred Shares – Total Cash
Market capitalization = shares at market*price of share
PEG – relation price of stock to earnings growth on share for 5 years. Indicates market waiting. If PEG > 1, it is mean, that company is overvalued by market and/or analysts. If PEG<1, that mean, that company is undervalued by market and/or analysts. Uses as auxiliary metric.
Pros of this metrics:
+ They give “photography” of company on the stock market
+ Give a possibility to make comparative analysis with other companies.
Cons of this metrics:
- Don’t give a valuation of financial health of the company
- Don’t give a valuation of structure of the company
This negative sites decides by using other metrics.
Indicators, based on the Income Statement, are important part of analysis of the company and give understanding of her status at analysis moment and needs of next analysis. But using this metrics needs to use that with other elements of quality and quantitative analysis.
Wish You have good investing,
Financial analyst and advisor,
Valerii Selin
This article is about metrics, based on Income Statement data. They are used for first-look analysis to understanding is this company good for investing. This metrics show over/undervaluation of company. Undervalued companies are good to investing.
Description of indicators:
PE – relation of stock price to net profit on stock. Indicate over/undervaluation of the company. Her critical meaning depends from sector of economic, in which works company.
PE without NRI – relation of stock price to net profit on stock, but do not include unusual profits from non-operational activity (selling part of assets, real estate and so on). If PE without NRI is equal PE – company have profits only from operational activity and is good signal.
Forward PE – consolidated meaning future PE from analytics.
PB – relation price of stock to the book value of stock. Measure of over/undervaluation of the company. If PB = 1, it is mean, that company have fair value. Usually PB is more than 1 and become 1 or lower only in crisis.
PS – relation price of stock to sales/revenue.
EV-to-EBIT, EV-to-EBITDA, EV-to-Revenue – another variant of metrics under/overvaluation of the company. Can be used instead PE or with PE.
Revenue – Or sales.
EBITDA – Income after paying COGS (Cost of goods saled), SG&A (selling, general and administrative expences) and before payment of D&A (depreciation and amortization), taxes and interest rates.
EBIT = net profit – EBITDA after payment D&A, taxes and interest rates.
Enterprise value (EV) – price of company at absorption by other company. EV = Market Capitalization + Debt + Preferred Shares – Total Cash
Market capitalization = shares at market*price of share
PEG – relation price of stock to earnings growth on share for 5 years. Indicates market waiting. If PEG > 1, it is mean, that company is overvalued by market and/or analysts. If PEG<1, that mean, that company is undervalued by market and/or analysts. Uses as auxiliary metric.
Pros of this metrics:
+ They give “photography” of company on the stock market
+ Give a possibility to make comparative analysis with other companies.
Cons of this metrics:
- Don’t give a valuation of financial health of the company
- Don’t give a valuation of structure of the company
This negative sites decides by using other metrics.
Indicators, based on the Income Statement, are important part of analysis of the company and give understanding of her status at analysis moment and needs of next analysis. But using this metrics needs to use that with other elements of quality and quantitative analysis.
Wish You have good investing,
Financial analyst and advisor,
Valerii Selin
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