Everything to Know about ROE, with Average ROE by Industry Data

“Focus on return on equity, not earnings per share.” –Warren Buffett One of my favorite Buffett quotes of all time. Focusing on the returns on equity, and not earnings, forces us to recognize the company’s performance in managing their capital versus strictly the earnings and nothing else. Buffett likes to compare stock returns to the […]

What’s a Good PEG Ratio? It Depends. Simple Pitfalls to Avoid

Conventional wisdom says that a good PEG ratio is anything below 1. But actually, there’s a lot that can go wrong with that assumption! The PEG ratio is a shortcut for determining how cheap a stock is relative to its growth. The lower the PEG, the cheaper a stock is trading (relative to its earnings […]

6 Examples of Negative Earnings Leading to Bankruptcy in the Stock Market

I’ve had the controversial take that investors should avoid stocks with negative earnings. This is because my research into the biggest bankruptcies of the 21st Century showed that negative earnings was the #1 most common characteristic of companies in the year before bankruptcy. The following are snippets from my book Value Trap Indicator, which examined […]

Graham Formula: Taking a Look at the Way Benjamin Graham Values Stocks

“Using precise numbers is, in fact, foolish; working with a range of possibilities is a better approach.” Warren Buffett Warren Buffett shares much of his investing wisdom in his annual letters to shareholders, including his thoughts on calculating intrinsic value. His favorite analogy is the Aesop fable that a bird in the hand is worth […]

The Price to Sales (P/S) Ratio Formula Explained

Price to Sales (“P/S”) is one of the more common and simple relative valuation ratios used to generally compare how expensive or cheap a stock is compared to its peers. The price to sales ratio formula itself is simple, it is Price (Market Cap) divided by Sales (Revenue). The reason we use Market Capitalization for […]

Take Rate: Its Importance in the eCommerce and Fintech Industries

Today’s marketplaces and finance industries are changing at a rapid pace. The rise of eCommerce and Fintech disrupts how we buy and sell merchandise, car rides, banking, and groceries. With that rise comes new terms that help us determine how profitable these companies are, plus how to define their pricing power. The take rate has […]

How to Use Net Tangible Assets from a Company’s Balance Sheet

Net tangible assets can be a very useful metric for evaluating a company’s future profitability, especially in capital intensive industries. In this blog post, I’ll explain the basics behind net tangible assets and include a few easy and practical metrics for it. We’ll break it up into these simple parts [Click to Skip Ahead]: What […]

Beginner’s Guide: What is the P/B Ratio in the Stock Market?

The P/B, or Price to Book Value Ratio, compares a company’s book value with its price in the stock market. Book Value, also called Shareholders’ Equity, is simply a company’s assets minus their liabilities. Book value is not usually explicitly referred to in a company’s financial statements, but is commonly known as another term for […]

What is Capital Structure and How is it Related to Credit Health?

A company’s capital structure, combined with credit health, can drive the company forward regarding revenues, earnings, and cash flows. How the company chooses to fund growth goes a long way toward ultimate success. When investors search for investment quality, starting with the story, a balance sheet tells investors about the capital structure and how the […]

What is a Good P/E Ratio?

The Price to Earnings, or P/E ratio, is one of the most basic ways to try and figure out if a stock is generally cheap. The logic behind the P/E ratio is quite simple. The equation for the P/E ratio is simply Price / Earnings. A low P/E is generally considered better than a high […]