Financial Ratio
Adjusted EPS
Adjusted Earnings per Share is the Company’s net profit per share after adjusting for
extra-ordinary/exceptional items.
Book Value Per Share (BVPS)
The total value that a company will fetch upon liquidation (if its closed down), after settling all the
obligations is called its Book Value. Book value of the company includes only tangible assets.
Compounded Annual Growth Rate (CAGR)
CAGR is the year-over-year growth rate (%) of an investment over a period of time.
Debt/Net Profit Ratio
This ratio indicates how long the company will take to repay the loan it has raised in debt market if its
profit grows at current rate in the future also. So, it is better yo invest in the company that has low Debt
to Net Profit, not more than 3.
Debt to CFO
It represents the duration (in years) taken by the company to repay the debt, in accordance with the cash
generated from its operations.
Dividend per Share (DPS)
DPS is the earnings i.e. the net profit after taxes distributed to ordinary shareholders divided by the no
of ordinary shares outstanding. If two companies are growing at same rate it is better to invest in the
company which pays higher dividend per share because of the higher dividend over the holding period.
Earnings per Share (EPS)
Company's adjusted net profit allocated to each outstanding share is called Earnings per share.
Efficiency Ratios – Working Capital Days
This ratio explains how many days it will take for a company to convert its working capital into revenue.
The faster (Lower number of days) a company does this, the better.
Free Cash Flow (FCF)
Free cash flow is the cash which the company generates from its operations after deducting the amount
required to maintain or expand its asset size. Thus, FCF is the cash left for its shareholders by the
company after investment in its growth plans has been accounted for.
Future Price to Earnings per Share Ratio
It is the ratio of expected market price and expected earnings per share of the company during the next
10years. It gives us an idea of what the market is willing to pay for the company’s future earnings.
Industry Price to Earnings per Share
Industry price to earnings per share tells us, on an average, what the market is willing to pay for overall
earnings in that industry. It can be used as a benchmark price to earnings ratio for the companies in that
industry.
Leverage Ratios – Debt to Equity Ratio
This ratio indicates the ratio of equity to debt the company employs to finance its operating assets
Net Operating Cash Flow
This refers to the amount of cash a company generates from the revenues
less operating expenses.
Net Profit Margin (NPM)
NPM is the ratio (shown in %) of a company’ profit net of taxes and most importantly interest payments, to
its Sales. It is advisable to look at the change in a company’s net profit margin over time and to
compare the company's yearly or quarterly numbers to those of its competitors.
Net Sales
Net sales can be calculated by deducting all the duties, freight and other expenses from sales of the
company.
Net Working Capital Days
This is the ratio of a company’s working capital – net of what the company owes to its creditors
(suppliers) – to its sales in days term.
Operating Profit Margin (OPM)
Operating margin shows how much profit a company makes (before interest payment and taxes) on each rupee of
sales. It is advisable to look at the change in a company’s operating margin over time and compare the
company's yearly or quarterly numbers to those of its competitors.
Performance Ratio – Return on Equity (ROE)
Return on equity shows the amount of net profit generated as a percentage of shareholders equity. ROE
measures a company's profitability over the money shareholders have invested.
Relative Strength Index
It is a technical momentum indicator used to chart the current and historical strength or weakness of a
stock or the market, on the basis of the closing prices of a recent trading period.
The formula for its calculation is:
RSI = 100-100/(1+RS)
Where,
RS = [average of days (up closing)/average of days (down closing)]
The formula for its calculation is:
RSI = 100-100/(1+RS)
Where,
RS = [average of days (up closing)/average of days (down closing)]
Price to Book Value Ratio (P/BV)
Price to Book Value is the ratio of stock's market value to its book value. It gives some idea of whether
investors are paying too much for what would be left if the company went bankrupt immediately. To get high
returns, it is advisable to invest in a company which satisfies all the criteria set by MoneyWorks4me and
which has low price to book value ratio.
Price to Earnings per Share Ratio (P/E Ratio)
It is the ratio of market price and earnings per share. It shows what the market is willing to pay for the
company’s earnings. To get high returns it is advisable to invest in the company which satisfies all the
criteria set by MoneyWorks4me and which has low price to earnings ratio as compared to the industry.
Reserves
The term reserve represents a part of shareholders'
equity, except for basic share capital. Reserves are created from retained earnings and
shareholders' contributions in the form of share premium etc.
Return on Capital Employed (ROCE)
Return on Capital Employed is the ratio of net operating profit after tax to total investment made by the
company. It gives a sense of how well a company is using its money to generate returns. Higher the ROCE,
more efficient is the company.
Value Creation Index
It is the difference between ROCE and WACC, as a proportion of WACC, which tells the extent of value,
created by the company.
The formula for its calculation is:
VCI = (ROCE-WACC)/WACC
Where,
ROCE: Return on Capital Employed
WACC: Weighted Average Cost of Capital
The formula for its calculation is:
VCI = (ROCE-WACC)/WACC
Where,
ROCE: Return on Capital Employed
WACC: Weighted Average Cost of Capital
WACC
Weighted Average Cost of Capital is the average of the costs incurred by a company for the various sources
of financing that it has availed. In essence, WACC tells you on an average how many rupees you spend to
service the capital your business is using.
