Trailing Twelve Months (TTM): Why It’s Used and How to Use It
When valuing a company, the number one imperative, use the most up-to-date numbers we can find. Numbers such as prices constantly update in the markets. But the accounting inputs we use come from accounting statements such as the income statement, and those don’t update on a constant basis. So what is the answer? The challenge […]
The Magic Formula to Beat the Market
Joel Greenblatt owns one of the best investing records on Wall Street, generating over 40 percent compounded returns during ten years. In 2005, Greenblatt published his seminal book, The Little Book that Beats the Market, in which he describes a method investors can use to beat the market, the Magic Formula. Greenblatt developed and tested […]
Your Essential Beginner’s Guide to the Forward Price to Earnings (P/E) Ratio
Forward Price to Earnings, or Forward P/E, is an easy ratio for estimating how expensive a stock is compared to its projected (“forward”) earnings. Similar to the Price to Earnings (P/E) ratio, it gives investors an apples-to-apples comparison for every stock in regards to its profitability (earnings) and stock price. The P/E is a common […]
What is Return on Equity and How Do I Calculate it?
“Focus on return on equity, not earnings per share.” Warren Buffett In the investing world, there always seems to be a big divide between “value and growth,” deep value (cigar butts) and quality value, and many others. Buffett notes throughout his Shareholder Letters that both sides of the coin can coexist; focusing on the company’s […]
The Basics Behind Using the Price to Earnings Valuation Method on a Stock
The price to earnings valuation method is a simple and quick way to get an idea about how cheap or expensive a stock generally is. Like any tool or framework, the price to earnings (or P/E) ratio is not a perfect estimate of valuation and has its drawbacks. The P/E is useful as a starting […]
What’s the Ideal Quick Ratio? The 3 Simple Questions to Consider
The quick ratio is a worst-case scenario metric. It helps you project if a company could survive if revenues were to dry up. The quick ratio compares the short term assets and liabilities of a company. In general, an ideal quick ratio is one above 1. But that doesn’t tell the entire story, because for […]
What’s a Good Debt to Equity Ratio? The Ultimate Guide for Beginners
The debt to equity ratio is a great formula for investors to use as a rule of thumb for determining the riskiness of a stock, based on its balance sheet. That said, not all companies with a high debt to equity ratio are risky companies; not all companies with a low (or zero) debt to […]
What is a Breakeven Analysis?
A Breakeven Analysis is one of the most common ways to assess a business decision. In its most simplistic form, a breakeven analysis looks at how many units of a product or service must be sold in order for total revenues to equal the cost of production. A breakeven analysis is commonly used in financial […]
How 13f Filings Can Help Investors Evaluate Insurance Stocks
How do insurance companies make money? We all think that the premiums that we pay every month are how most insurance companies make money. Insurance companies make money on their investment portfolios, and the big question is, how do we measure that performance to determine a company worth our investment? Everyone is aware of Warren […]
Understanding Run Rate and Applying it to Your Stock Investing Strategy
The term “Run Rate” is one that you quite possibly might have heard before, but many people do not know what it means. It is a term that frequently is said on shows like Shark Tank but also oftentimes used in the business world. Essentially, run rate means that you’re taking the current market conditions […]
