Measures
Measure
Increasing Sales Revenue
Increasing Net Income After Tax
Category
Profitability
Profitability
Formula
Remarks
[Total Revenue]
[PROFIT/LOSS BEFORE TAX]+[Income Tax Expense]
Increasing Gross Profit Margin
Profitability
(Preferably ≥ 40%)
Consistent (and preferably
Profitability
increasing) ROCE (Preferably ≥ 8%)
[Gross Profit]/[Total Revenue]
Increasing high ROE (Preferably ≥
15%)
[NET PROFIT/LOSS TO SHAREHOLDERS]/[TOTAL
SHAREHOLDERS'' FUND]
ROI
[Operating Income]/[Capital Employed]
There are various versions of ROE formula:
1. ET version: [NET PROFIT/LOSS TO SHAREHOLDERS] / Total Shareholders
Funds x 100%
Total Shareholders Funds refers to market value of equity
2. CFA version: [NET PROFIT/LOSS TO SHAREHOLDERS]/ Average Stockholders'
Equity x 100%
Increasing ROIC (Preferably ≥ 15%)
ROI
[NOPAT]/[Invested Capital]
Here, for simplicity, I choose ET version because both formula yield almost
similar value.
According to CFA, ROIC is
EBIT / (Short-term debt + Long-term debt + Equity)
I use the above formula.
Another variation of formula, based on Adam Khoo and
http://www.magicdiligence.com/articles/understanding-business-statistics
EBIT (1-Tax Rate) / (Equity + Total Debt - Cash & Equivalents)
OR
NOPAT / (Equity + Total Debt - Cash & Equivalents)
Increasing CROIC (Preferably ≥ 15%) ROI
[Free Cash Flow]/[Invested Capital]
Increasing Net Cash from
Operations
[Net Cash From Operations]
Liquidity
Cash Return on Invested Capital
Increasing Free Cash Flow / Sales
Liquidity
(Preferably ≥ 5%)
Increasing Quick Ratio (Preferably ≥ Liquidity
1)
[Free Cash Flow]/[Total Revenue]
([Total Current Assets]-[Inventory])/[Total Current Compare to Current Ration, the quick (or acid-test) ratio is a more stringent
Liabilities]
measure of liquidity. Only liquid assets are taken into account. Inventory and
other assets are excluded, as they may be difficult to dispose of.
Original formula (http://www.investopedia.com/exam-guide/cfa-level1/financial-ratios/internal-liquidity-ratios.asp#axzz1pASQutq2):
(cash+ marketable securities + accounts receivables) /
current liabilities
Equivalent formula (http://www.fool.com/investing/beginning/how-to-valuestocks-how-to-read-a-balance-sheet-cu.aspx):
(current assets - inventories) / current liabilities
Short & declining Cash Conversion
Cycle
Liquidity
[Inventory Days]+[Receivable Days]-[Payable
Days]
Increasing Net Profit Margin
(Preferably ≥ 10%)
Efficiency
([PROFIT/LOSS BEFORE TAX])/[Total Revenue]
When a company has a high profit margin, it usually means that it also has one
or more advantages over its competition. Companies with high net profit
margins have a bigger cushion to protect themselves during the hard times.
Companies with low profit margins can get wiped out in a downturn. And
companies with profit margins reflecting a competitive advantage are able to
improve their market share during the hard times - leaving them even better
positioned when things improve again.
http://www.investopedia.com/articles/fundamental/04/042804.asp#axzz1oIl7Y
yQl
To calculate net profit margin, several financial books, sites, and resources tell
an investor to take the after-tax net profit divided by sales. While this is
standard and generally accepted, some analysts prefer to add minority interest
back into the equation, to give an idea of how much money the company made
before paying out to minority "owners". Either way is acceptable, although you
must be consistent in your calculations. All companies must be compared on
the same basis.
Option 1: Net Income After Taxes ÷ Revenue = Net Profit Margin
Option 2 (Adam Khoo version): (Net Income + Minority Interest + Tax-Adjusted
Interest) ÷ Revenue
OR
PATMI (Profit After Tax & Minority Interest) ÷ Sales Revenue
Here, I selected Option 1 for simplicity
Increasing OCF/TA (Preferably ≥ 8%) Efficiency
[Net Cash From Operations]/[Total Assets]
Declining Debt/Equity Ratio
(Preferably < 1)
Low Risks
([Total Debt])/[TOTAL SHAREHOLDERS'' FUND]
[Total debt]/[Shareholders’ equity]
[Shareholders’ equity] has 2 definitions:
1. Book value (Accounting Equation)
total assets - total liabilities
2. Market value (investor equation)
share capital + retained earnings - treasury shares
Both yield values that very close.
Here, I choose market value. No particular reason.
http://www.wikihow.com/Calculate-Shareholders%27-Equity
Operating Income Variability
Low Risks
Sales Variability
Low Risks
STDEV.P([Operating
Income])/AVERAGE([Operating Income])
STDEV.P([Total Revenue])/AVERAGE([Total
Revenue])
Increasing Altman Z Score
(Preferably ≥ 2.6)
Low Risks
Declining Beneish Score (Preferably Low Risks
< -2.22)
Original Altman Z Score:
Original Altman Z Score
When Z is 3.0 or more, the firm is most likely safe based on the financial data.
1.2*([Working Capital]/[Total
However, be careful to double check as fraud, economic downturns and other
Assets])+1.4*([Accumulated Earnings]/[Total
factors could cause unexpected reversals.
Assets])+3.3*[NOPAT]/[Total Assets]+0.6*[Market When Z is 2.7 to 3.0, the company is probably safe from bankruptcy, but this is
Cap]/[Total Liabilities]+0.999*[Total
in the grey area and caution should be taken.
Revenue]/[Total Assets]
When Z is 1.8 to 2.7, the company is likely to be bankrupt within 2 years. This is
the lower portion of the grey area and a dramatic turnaround of the company is
Revised Altman Z Score:
needed.
When Z is below 1.8, the company is highly likely to be bankrupt. If a company
6.56*([Working Capital]/[Total
is generating lower than 1.8, serious studies must be performed to ensure the
Assets])+3.26*([Accumulated Earnings]/[Total
company can survive.
Assets])+6.72*[NOPAT]/[Total
Assets]+1.05*[Market Cap]/[Total Liabilities]
Revised Altman Z Score
When Z is 2.6 or more, the firm is most likely safe based on the financial data.
However, be careful to double check as fraud, economic downturns and other
factors could cause unexpected reversals.
When Z is 1.1 to 2.6, the company is probably safe from bankruptcy, but this is
in the grey area and caution should be taken.
When Z is below 1.1, the company is highly likely to be bankrupt. If a company
is generating lower than 1.8, serious studies must be performed to ensure the
company can survive.
-6.065 + 0.823*[DSRI] + 0.906*[GMI] +
0.593*[AQI] + 0.717*[SGI] + 0.107*[DEPI]
The 5 Variable Version of the Beneish Model
The five variable version excludes SGAI, DEPI and LEVI which were not
significant in the original Beneish model.
M = -6.065 + 0.823*DSRI + 0.906*GMI + 0.593*AQI + 0.717*SGI + 0.107*DEPI
A score greater than -2.22 indicates a strong likelihood of a firm being a
manipulator.
Increasing Sustainable Growth Rate Potential Growth
(Preferably ≥ 8%)
(1-[DPS]/[EPS])*[ROE]
According to CFA,
g = (1 - DPS/EPS) x ROE
Where (1 - (DPS/EPS)) = Earnings retention rate
Increasing Expected EBIT Growth
(Preferably ≥ 8%)
Quality of Sales Revenue Growth
(Preferably ≥ 80%)
Quality of EBIT Growth (Preferably ≥
80%)
Quality of Operating Cash Flow
Growth (Preferably ≥ 80%)
Shareholder Wealth Creation
(Preferably ≥ 8%)
Potential Growth
[EBIT Reinvestment Rate]*[ROC]
Potential Growth
RSQ([Total Revenue])
Potential Growth
RSQ([Operating Income])
Potential Growth
RSQ([Net Cash From Operations])
Buy & Hold
Returns
[3-Y SWC], [5-Y SWC], [10-Y SWC], [Full SWC]
Data Source
Data
Market Cap
Total Revenue
Base/Derived
Base
Base
Annual/Quarter
Annual
Annual
Operating Income
Base
Annual
PROFIT/LOSS BEFORE TAX
Base
Annual
NET PROFIT/LOSS TO
SHAREHOLDERS
Depreciation
Base
Annual
Base
Annual
Interest Expense
Base
Annual
Income Tax Expense
Base
Annual
Net Cash From Operations
Base
Annual
Cash and Equivalents
Base
Annual
Inventory
Base
Annual
Accounts Receivable
Base
Annual
Total Current Assets
Base
Annual
Accounts Payable
Base
Annual
Total Current Liabilities
Base
Annual
Intangible Assets
Base
Annual
TOTAL LONG-TERM ASSETS Base
Annual
Accumulated Earnings
Base
Annual
TOTAL SHAREHOLDERS'
FUND
Minority Interest
Base
Annual
Base
Annual
TOTAL LONG-TERM
LIABILITIES
EPS
Base
Annual
Base
Annual
DPS
Base
Annual
Gross Profit
Base
Annual
Short-Term Debt
Base
Annual
Long Term Debt
Base
Annual
Capital Expenditure
Base
Annual
Sales From LT Assets
Base
Annual
Tax Rate
3-Y SWC
Base
Base
Annual
Annual
5-Y SWC
Base
Annual
10-Y SWC
Base
Annual
Full SWC
Base
Annual
Source/Formula
Remarks
EquitiesTracker > Profile > Market Cap (RM)
EquitiesTracker > Financials > 10-YR PROFIT & LOSS >
TURNOVER
Same as EBIT
EquitiesTracker > Financials > 10-YR PROFIT & LOSS >
OPERATING PROFIT
Same as Net Income
EquitiesTracker > Financials > 10-YR PROFIT & LOSS >
PROFIT/LOSS BEFORE TAX
EquitiesTracker > Financials > 10-YR PROFIT & LOSS > NET
PROFIT/LOSS TO SHAREHOLDERS
EquitiesTracker > Financials > 10-YR PROFIT & LOSS >
Depreciation
EquitiesTracker > Financials > 10-YR PROFIT & LOSS >
Interest
EquitiesTracker > Financials > 10-YR PROFIT & LOSS >
Taxation
EquitiesTracker > Financials > 10-YR Cash Flow >
Operating Activities
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
Cash & Securities
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
Stocks
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
Debtors/Receivables
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
TOTAL CURRENT ASSETS
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
Creditors / Payables
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
TOTAL CURRENT LIABILITIES
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
Intangible Assets
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
TOTAL LONG-TERM ASSETS
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
Accumulated Earnings
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
TOTAL SHAREHOLDERS' FUND
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
MINORITY INTEREST
EquitiesTracker > Financials > 10-YR BALANCE SHEET >
TOTAL LONG-TERM LIABILITIES
EquitiesTracker > Ratios & Indices > PER SHARE INDICES &
PRICE MULTIPLES > EPS
EquitiesTracker > Ratios & Indices > PER SHARE INDICES &
PRICE MULTIPLES > DPS
Businessweek > Financials > Income Statement > Gross
Profit or Annual Report
Businessweek > Financials > Balance Sheet > Short-Term
Borrowings or Annual Report
Businessweek > Financials > Balance Sheet > Long Term
Debt or Annual Report
Annual Report > Cash Flow > Purchase of property and
equipment
Annual Report > Cash Flow > Proceeds from disposal of
property and equipment
Annual Report
EquitiesTracker > Tracker Analyst Summary > SWC SCORE
(BUY & HOLD RETURNS) - PRICE CAGR%
EquitiesTracker > Tracker Analyst Summary > SWC SCORE
(BUY & HOLD RETURNS) - PRICE CAGR%
EquitiesTracker > Tracker Analyst Summary > SWC SCORE
(BUY & HOLD RETURNS) - PRICE CAGR%
EquitiesTracker > Tracker Analyst Summary > SWC SCORE
(BUY & HOLD RETURNS) - PRICE CAGR%
Free Cash Flow
Derived
Annual
[Net Cash From Operations]-([Capital Expenditure]-[Sales There are actually two types of DCF models: "free cash
From LT Assets]*(1-[Tax Rate])) * (1-[Total Debt]/[Total
flow to equity" and "cash flow to the firm." The first
Assets])
involves counting just the cash flow available to
stockholders and is a bit easier to understand. The
second involves counting the cash flow available to
both debt and equity holders and has several
additional steps. both methods should give you
roughly the same result for any given company.
(http://news.morningstar.com/classroom2/course.asp
?docId=145101&page=2&CN=COM)
Here, I use "free cash flow to equity"
FCFE = cash flow from operating activities - net capital
expenditures (total capital expenditure - after-tax
proceeds from sale of assets) + Net Borrowings
Net Borrowings = New Debt Financing - Debt
Repayment
proceeds from sales of long-term sales = Proceeds
from disposal of property and equipment
in "2010 OS Financial Trading System", it simplifies
FCFE to
FCFE = cash flow from operating activities - net capital
expenditures * (1 - Debt to Total Assets)
Invested Capital
Derived
Annual
[Total Equity]+[Total Debt]
http://www.investopedia.com/university/EVA/EVA3.as
p#axzz1rDggpdjr
NOPAT
Derived
Annual
[Operating Income]*(1-[Tax Rate])
Invested Capital = Total Assets - non-interest-bearing
current liabilities (NIBCLS) = Total Debts + Equity
in ET, [Operating profit ] already included [NET
INTEREST EXPENSE]
In bloomberg, OPERATING INCOME-Income Tax
Expense+NET INTEREST EXPENSE
equivalent to ET
OPERATING PROFIT-Taxation
http://en.wikipedia.org/wiki/NOPAT
The issue is in Taxation in P/L already include tax on
net interest expense (if any). So we cannot use Income
Tax Expense, but use Tax Rate.
Inventory Days
Receivable Days
Payable Days
Working Capital
DSRI
GMI
Derived
Derived
Derived
Derived
Derived
Derived
Annual
Annual
Annual
Annual
Annual
Annual
[Inventory]*365/[Total Revenue]
[Accounts Receivable]*365/[Total Revenue]
[Accounts Payable]*365/[Total Revenue]
[Total Current Assets]-[Total Current Liabilities]
([Accounts Receivable](t)/[Total Revenue](t))/([Accounts
Receivable](t-1)/[Total Revenue](t-1))
([Gross Profit](t)/[Total Revenue](t))/([Gross Profit](t1)/[Total Revenue](t-1))
DSRI = Days’ Sales in Receivables Index
Measured as the ratio of days’ sales in receivables in
year t to year t-1. A large increase in DSR could be
indicative of revenue inflation.
GMI = Gross Margin Index
Measured as the ratio of gross margin in year t-1 to
gross margin in year t.
Gross margin has deteriorated when this index is
above 1. A firm with poorer prospects is more likely to
manipulate earnings.
Other L/T Assets [TA(CA+PPE)]
AQI
Derived
Annual
[Total Assets]-[Capital Expenditure]-[Total Current Assets]
Derived
Annual
([Other L/T Assets '[TA-(CA+PPE)']](t)/[Total
AQI = Asset Quality Index
Assets](t))/([Other L/T Assets '[TA-(CA+PPE)']](t-1)/[Total
Assets](t-1))
Asset quality is measured as the ratio of non-current
assets other than plant, property and equipment to
total assets.
AQI is the ratio of asset quality in year t to year t-1.
SGI
Derived
Annual
[Total Revenue](t)/ [Total Revenue](t-1)
SGI = Sales Growth Index
Ratio of sales in year t to sales in year t-1.
Sales growth is not itself a measure of manipulation.
However, growth companies are likely to find
themselves under pressure to manipulate in order to
keep up appearances.
DEPI
Derived
Annual
(-[Depreciation](t-1)/([Capital Expenditure](t-1)+([Depreciation](t-1))))/(-[Depreciation](t)/([Capital
Expenditure](t)+(-[Depreciation](t))))
Change in Working Capital
Derived
Annual
[Working Capital](t)-[Working Capital](t-1)
EBIT Reinvestment Rate
Derived
Annual
ROC
Derived
Annual
Price-to-Book Ratio
Enterprise Value
Derived
Derived
Annual
Annual
Cash Return
Derived
Annual
(([Capital Expenditure]-[Sales From LT Assets]*(1-[Tax
Rate]))+[Change in Working Capital])/([Operating
Income]*(1-[Tax Rate]))
([Operating Income]*(1-[Tax Rate]))/([Total Debt]+[Total
Equity])
[Market Cap]/[TOTAL SHAREHOLDERS'' FUND]
[@[Market Cap]]+[Total Debt]+[Minority Interest][@[Cash and Equivalents]]
([Free Cash Flow]+(-[Interest Expense]))/[Enterprise
Value]
DEPI = Depreciation Index
Measured as the ratio of the rate of depreciation in
year t-1 to the corresponding rate in year t.
DEPI greater than 1 indicates that assets are being
depreciated at a slower rate. This suggests that the
firm might be revising useful asset life assumptions
upwards, or adopting a new method that is income
friendly.
The goal of Cash Return is to measure how efficiently
the business is using its capital –both equity and debtto generate free cash flow. Essentially cash return tells
you how much free cash flow a company generates as
a percentage of how much it would cost to buy the
whole shebang, including the debt burden.
Cash return is a great first step to finding cash cows
trading at reasonable prices, but avoid using cash
return for financials or foreign stocks. Cash flow is not
terribly meaningful for banks and other firms that earn
money via their balance sheets. And because
definitions of cash flow can vary widely in other
countries, a foreign stock that looks cheap based on its
cash return may simply be defining cash flow more
liberally.
Capital Employed
Derived
Annual
[Total Assets]-[Total Current Liabilities]
Capital employed is the sum of all ordinary and
preferred-share capital reserves, all debt and finance
lease obligations, as well as minority interests and
provisions. It can also be calculated by subtracting
current liabilities from total assets.
ROCE
Derived
Annual
[Operating Income]/[Capital Employed]
http://www.investopedia.com/articles/stocks/05/0103
05.asp?partner=rss-recentarticles#axzz2EbdoM7HU
EPS
Base
Quarter
Turnover
Base
Quarter
Net Profit
Base
Quarter
CU EY
CU DY
R-4Q EY
R-4Q DY
R-4Q EPS
Base
Base
Base
Base
Base
Quarter
Quarter
Quarter
Quarter
Quarter
Cash and Equivalents
Short-Term Investments
Short-Term Debt
Long Term Debt
Net Cash From Operations
Base
Base
Base
Base
Base
Quarter
Quarter
Quarter
Quarter
Quarter
EquitiesTracker > Quarterlies > Latest Quarterly Results >
EPS
EquitiesTracker > Quarterlies > Latest Quarterly Results >
Turnover
EquitiesTracker > Quarterlies > Latest Quarterly Results >
Net Profit
EquitiesTracker > Profile > CU EY
EquitiesTracker > Profile > CU DY
EquitiesTracker > Profile > R-4Q EY
EquitiesTracker > Profile > R-4Q DY
EquitiesTracker > Quarterlies > Latest Quarterly Results >
R-4Q EPS
Quarterly Report
Quarterly Report
Quarterly Report
Quarterly Report
Quarterly Report
Capital Expenditure
Interest Expense
Sales From LT Assets
Tax Rate
Minority Interest
Base
Base
Base
Base
Base
Quarter
Quarter
Quarter
Quarter
Quarter
Quarterly Report
Quarterly Report
Quarterly Report
Quarterly Report
Quarterly Report