TOOLS USED FOR ANALYSIS

Price Earnings Ratio

The price-to-earnings ratio, or PE ratio, or P/E ratio, is an equity valuation multiple. It is
defined as market price per share divided by annual earnings per share.
Market Value per Share
Earnings per Share (EPS)
While doing analysis
Generally a high P/E ratio means that investors are anticipating higher growth in the
future.
The price earnings ratio can use estimated earnings to get the forward looking P/E
ratio.
Companies that are losing money do not have a P/E ratio.
BETA
Beta is considered as a measure of the volatility, or systematic risk, of a security or a portfolio in
comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model
that calculates the expected return of an asset based on its beta and expected market returns.
Beta is calculated using regression analysis, and you can think of beta as the tendency of a
security's returns to respond to swings in the market. A beta of 1 indicates that the security's
price will move with the market. A beta of less than 1 means that the security will be less
volatile than the market. A beta of greater than 1 indicates that the security's price will be more
volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile
than the market.
Dividend Yield Ratio
A financial ratio that shows how much a company pays out in dividends each year relative to its
share price. In the absence of any capital gains, the dividend yield is the return on investment
for a stock. Dividend yield is calculated as follows:




When you're searching for stocks with high dividend yields, one quick check you should always
make is to look at the company's payout ratio. It tells you what percentage of earnings
management is doling out to shareholders in the form of dividends. If the number is above 75%
consider it a red flag -- it might mean the company is failing to reinvest enough of its profits in
the business. A high payout ratio often means the company's earnings are faltering or that it is
trying to entice investors who find little else to get excited about. Since dividend yield ratio is
used to measure the relationship between the annual amount of dividend per share and the
current market price of a share, it is mostly used by investors looking for dividend income on
continuous basis.
GROSS MARGIN
A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue,
expressed as a percentage. The gross margin represents the percent of total sales revenue that
the company retains after incurring the direct costs associated with producing the goods and
services sold by a company. The higher the percentage, the more the company retains on each
dollar of sales to service its other costs and obligations.



EBDIT MARGIN
A measurement of a company's operating profitability. It is equal to earnings before interest,
tax, depreciation and amortization (EBITDA) divided by total revenue. Because EBITDA excludes
depreciation and amortization, EBITDA margin can provide an investor with a cleaner view of a
company's core profitability. The higher the EBITDA margin, the less operating expenses eat
into a company's bottom line, leading to a more profitable operation.
OPERATING MARGIN
A ratio used to measure a company's pricing strategy and operating efficiency. Calculated as:


Operating margin is a measurement of what proportion of a company's revenue is left over
after paying for variable costs of production such as wages, raw materials, etc. A healthy
operating margin is required for a company to be able to pay for its fixed costs, such as interest
on debt.


Also known as "operating profit margin" or "net profit margin".
Operating margin gives analysts an idea of how much a company makes (before interest and
taxes) on each dollar of sales. When looking at operating margin to determine the quality of a
company, it is best to look at the change in operating margin over time and to compare the
company's yearly or quarterly figures to those of its competitors. If a company's margin is
increasing, it is earning more per dollar of sales. The higher the margin, the better.
NET PROFIT MARGIN
Net profit margin is a financial ratio comparing a company's net profit after taxes to revenue.
This ratio is not useful for companies losing money, since they have no profit. A low profit
margin can indicate pricing strategy and/or the impact competition has on margins.
RETURN ON EQUITY
The amount of net income returned as a percentage of shareholders equity. Return on equity
measures a corporation's profitability by revealing how much profit a company generates with
the money shareholders have invested.
RETURN ON INVESTMENT

EARNINGS PER SHARE
EPS decides the profitability of the company. EPS is considered to be the single most popular variable in
dictating a shares price. EPS is calculated by dividing the number of outstanding shares.