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Category Archives for "Valuation Ratio"

Cash Flow Adequacy Ratio

This is a complete guide on how to calculate Cash Flow Adequacy Ratio with detailed analysis, interpretation, and example. You will learn how to use its formula to evaluate a company’s cash flows.

Definition - What is Cash Flow Adequacy Ratio?

The cash flow adequacy ratio measures whether the cash generated by a company’s operations are enough to pay for its other expenses that are likely to be ongoing for example, any fixed asset acquisitions or dividends to shareholders.

An investor would use this ratio in order to understand how well the business can cover its payments which is a good indicator of its future performance capabilities.

As a general rule, a company should aim to have a cash flow adequacy ratio of 1 or above.

This would indicate that the business would be able to meet its financial obligations.

On the other hand, a ratio of less than 1 might indicate that the business could potentially have some liquidity problems.

As with any ratio, it is much more informative to compare a company’s result to that of its competitors in order to provide further context.

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Price to Book Value Ratio (P/B)

This is a thorough guide on how to calculate Price to Book Value Ratio (P/B) with detailed interpretation, analysis, and example. You will learn how to use this ratio formula to perform a stock valuation.

Definition - What is Price to Book Value Ratio?

The price to book (P/B) value ratio is an important measure that is used to value a company’s stock. It compares the market value of a company to the book value of each of its shares.

There is no ‘ideal’ ratio but as a general rule for an investor, the lower the better as it implies the stock is undervalued and is therefore considered to be a better investment however caution should be taken as it could also mean that there is something fundamentally wrong with the company.

The value of the ratio also varies greatly across industries and so a good way to decipher just how positive the result is would be to compare the ratio to other similar companies.

If your goal as an investor is to find undervalued companies then this ratio offers a way to unearth high growth companies selling at lower prices.

In this case, a value that would be a cause for investment consideration would be below 3.0.

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Preferred Dividend Coverage Ratio

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

Definition - What is Preferred Dividend Coverage Ratio?

The preferred dividend coverage ratio (sometimes referred to as times preferred dividend earned) essentially tells you whether or not a company has made enough profit to pay off its preferred dividends.

So it’s a really important one for shareholders in particular but also gives you a sense of how well the company is doing.

Basically, it’s a way of measuring a company’s ability to pay or the relative burden those preferred dividends would have on the company.

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Cash Earning Per Share

This is an ultimate guide on how to calculate Cash Earnings per Share Ratio (Cash EPS) with detailed analysis, interpretation, and example. You will learn how to use its formula to assess a company's cash flow.

Definition - What is Cash Earnings per Share Ratio?

There are 5 types of earnings per share that can be calculated to better understand how strong a company is positioned financially.

One extremely useful type is the cash earnings per share ratio or the operating cash flow per share.

This one will give you a clearer insight because a company’s operating cash flow cannot be manipulated so easily. So you’ll get a better understanding of exactly how much the company has earned.​

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