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 […]
How the Piotroski Score Identifies Strong Businesses in the Stock Market
Updated 4/28/2023 One of the biggest challenges when determining whether or not to invest in a company is determining each company’s financial strength. Enter the Piotroski Score, and use the easy rating scale to help you learn a company’s strengths. Value investors love this rating scale as it gives you a good initial insight into […]
What is Degree of Combined Leverage? Definition and Use
Combined leverage is a powerful tool to analyze how a company uses debt, its expected future performance, and how it can amplify increases in sales. This post covers how to calculate this ratio, how it is used, and what it means.
Stock Market Infographic Shows How Eerily Predictive the Shiller P/E Is
This single stock market infographic is perhaps the biggest selling point for Robert Shiller’s method. It clearly outlines that when the Shiller P/E has been high, the market has done poorly– and vice versa. In this post, contributor Andy Shuler introduces Robert Shiller and also presents a great chart showing how the Shiller P/E has […]
How the Working Capital Turnover Ratio Can Help You Decide on a Worthy Investment
“Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally bought […]
How to Use Net Profit Ratio to Find a Worthy Investment
“If you do good valuation work, the market will eventually agree with you.” –Joel Greenblatt There are many methods for determining a company’s profitability. The net profit ratio is crucial since it measures how much money a business keeps after all costs are covered. Net income equals a company’s earnings, which Wall Street and analysts […]
NEGATIVE PE RATIO – What to Do?
Post updated: 7/14/2023 A negative P/E ratio can be concerning. You can’t really compare a negative P/E ratio with other stocks’ P/E’s. I’ll discuss 3 major reasons a company might have a negative P/E. This blog post will be split into these sections: [Click to Skip Ahead] Be sure to check out the Investor Takeaway […]
Calculate Earnings Yield and Return on Capital (Real-Life Example)
Investors looking to chase higher market returns can look to Joel Greenblatt’s book The Little Book That Beats the Market. In the book, Gleenblatt taught about a magic formula. That formula consisted of two distinct parts: earnings yield and return on capital. The way Greenblatt defined earnings yield and return on capital (which are somewhat […]
Why Liquidity Ratios Are Important, With Examples Using Real Companies
In times of financial uncertainty, finding companies with a good amount of liquidity provides a margin of safety. Companies in good shape regarding liquidity can react to any crisis by taking advantage of opportunities. Beyond safety, the two reasons above help explain why Berkshire Hathaway carries so much cash on its balance sheet. The current […]
5 Key Metrics: Balance Sheet vs Income Statement (Example with $AAPL)
Financial statements can look intimidating. There can be many line items. To learn how to navigate a company’s balance sheet and income statement– break it up into sections. In this post, we will chop the financial statements for Apple ($AAPL) into key sections, so you can better understand and learn what’s most important. To start– […]
