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– […]
BVPS: How Valuable is it to Know the True Value of a Stock?
The book value per share (BVPS) ratio compares stockholders’ equity to the total number of outstanding shares. In other words, this calculates a company’s per-share total assets less total liabilities. Value investors have traditionally embraced book value per share as a method of valuing different investments. Benjamin Graham, the founder of value investing, developed what […]
Everything to Know on ROA, with Average ROA by Industry Data
Post updated: 5/5/2023 The return on assets remains a useful measure for investors to understand. The formula offers a great way to measure the performance of management and generally is used to compare different companies in the same industry and how the company uses its assets. Warren Buffett loves to invest in banks and insurance […]
Diluted EPS Meaning Explained with a Simple Infographic
Take a look at any income statement and you’ll see EPS (or Earnings Per Share) divided into two categories: diluted EPS and basic EPS. Which EPS figure should you rely on, and what do those terms mean? The infographic below summarizes it simply: EARNINGS PER SHARE EPS = Earnings / Shares Outstanding DILUTED EPS Uses […]
Beginner’s Guide to the Price to Book Ratio
“Price is what you pay. Value is what you get.” –Warren Buffett The price-to-book ratio remains a top valuation metric for certain companies like banks, insurance companies, or railroads. Numerous variables influence the choice to purchase a certain stock. Of course, the first factor is how well the underlying business does. Equally crucial is determining […]
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 is a Good PEG Ratio?
Updated: 4/6/2023 The PEG ratio was one popularized by the famed fund manager Peter Lynch, who went on to post one of the best mutual fund track records of all time. Lynch used the PEG to identify good growth stocks trading at reasonable prices. The formula for the PEG ratio is: PEG = Price to […]
What is Return on Equity and How Do I Calculate it?
Updated 1/5/2024 “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 […]
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 […]
