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Category Archives for "Valuation Ratio"

Dividend Coverage Ratio

This is a detailed guide on how to calculate Dividend Coverage Ratio with thorough analysis, interpretation, and example. You will learn how to use its formula to evaluate a company's dividend performance.

Definition - What is Dividend Coverage Ratio?

The dividend coverage ratio, also known as the dividend cover ratio, is the ratio of a company’s net income over the dividend paid to shareholders.

This ratio tells us the number of times the business can pay dividends to shareholders from the profits it has earned during the period.

The dividend cover ratio is typically used by investors who want to analyze the risk of not receiving dividends.

So typically, a company with a higher ratio would suggest that is capable, potentially several times over, of paying dividends and would therefore be deemed as a less risky investment.

If, on the other hand, the ratio is less than 1, it might imply that the business cannot pay dividends, or is using borrowed money to pay dividends which are not sustainable and would be a cause for concern for investors.

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Earnings Per Share Ratio

This is a complete guide on how to calculate Earnings Per Share Ratio (EPS) with detailed analysis, interpretation, and example. You will learn how to use its formula to determine if a company is currently cheap or expensive.

Definition - What is Earnings Per Share Ratio?

Also going under the name of “income per share” or “EPS,” the earnings per share is a prospect ratio of the market that calculates the net income which was earned per share over a period.

The EPS declared by a company is a great indication of how profitable it is.

It’s basically the amount of money a company earns during a specific period, portioned out in terms of each outstanding share of common stock.

Simply put, this money is what any shareholders would receive for each common share they own if the profits were to be distributed by the company.

The earning per share also shows how much profit your company brings on a shareholder basis. Therefore, if we have a larger company and a smaller company, their profits can easily be compared.

Of course, all these calculations are greatly influenced by the number of outstanding shares. So, if you have a larger company, you would be required to split its profit amongst different shares.

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Price to Cash Flow Ratio

This is a complete guide on how to calculate Price to Cash Flow Ratio (P/CF) with detailed analysis, interpretation, and example. You will learn how to use its formula to find out if a stock is currently cheap or expensive.

Definition - What is Price to Cash Flow Ratio?

When attempting to analyze a company’s value, the price to cash flow ratio (P/CF) is a useful metric to use.

It can be utilized to discern which stocks are undervalued and overvalued in various industries.

The ratio incorporates the operating cash flow, which accurately tracks the amount of cash a company brings in by adding non-cash expenses, like depreciation and amortization, back into net income.

It is important to note that there is no benchmark ratio that indicates whether a stock is undervalued or not.

Rather, you must compare the ratio to comparable companies’ ratios to obtain a relative worth.

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Price to Sales Ratio

This is a detailed guide on how to calculate Price to Sales Ratio (P/S or PSR) with thorough interpretation, analysis, and example. You will learn how to use its formula to perform a company’s stock valuation.

Definition - What is Price to Sales Ratio?

When comparing companies in similar industries, the price to sales ratio (P/S or PSR) is an important metric used to calculate a relative value.

The P/S ratio is used to evaluate a company's worth with respect to its trailing twelve-month (TTM) sales.

Taken alone, the ratio does not provide meaningful data, but, as with most ratios, taking the PSR of several comparable companies can highlight the potentially undervalued ones.

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