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As you learned in the investing lessons, return on equity (ROE) is one of the most important indicators of a firm’s profitability and potential growth. Companies that boast a high return on equity with little or no debt are able to grow without large capital expenditures, allowing the owners of the business to withdrawal cash [...]
If you frequently read financial magazines, newspapers, and annual reports, you have no doubt come across something called enterprise value. You may have wondered what it is, how it’s calculated, and why it’s so important. What is Enterprise Value? Enterprise value is a figure that, in theory, represents the entire cost of a company if [...]
The price-to-earnings ratio (or p/e ratio for short) is the most popular way to measure the relative valuation of two stocks. It tells the investor how much Wall Street is willing to pay for $1 of earnings. A $10 stock with $1 EPS (earnings per share) is going to have a P/E of 10 ($10 [...]
Leverage Financial Ratios Those financial ratios that show the percentage of a company’s capital structure that is made up on debt or liabilities owed to external parties Liquidity Financial Ratios Those financial ratios that show the solvency of a company based on its assets versus its liabilities. In other words, it lets you know the [...]
Some investors prefer to focus on a financial ratio known the price to cash flow ratio instead of the more famous price to earnings ratio (or p/e ratio for short). Sit back, relax, and grab a cup of coffee because you’re about to learn everything you ever wanted to know about this often overlooked stock [...]
You often hear corporate officers, professional investors, and analysts discuss a company’s capital structure. You may not know what a capital structure is or why you should even concern yourself with it, but the concept is extremely important because it can influence not only the return a company earns for its shareholders, but whether or [...]
Financial ratios are useful indicators of a firm’s performance and financial situation. Most ratios can be calculated from information provided by the financial statements. Financial ratios can be used to analyze trends and to compare the firm’s financials to those of other firms. In some cases, ratio analysis can predict future bankruptcy. Financial ratios can [...]