--Key Figures for Stock Analysis Part II--
Hello all,
since the last post was surprisingly well received and more ratios were mentioned in the comments, I thought a second part would not be so wrong. Here I have picked out ratios that I personally find interesting or important.
Feel free to write your opinion in the comments! Which metric(s) do you find very important? What do you look at first when you look at a company?
Click here to go to Part I: https://app.getquin.com/activity/XrdHVVycUn
𝗘𝗣𝗦
The earnings per share (EPS) ratio describes the profit of a listed company per share outstanding. The figure is calculated on either a quarterly or annual basis and is calculated by dividing a company's (quarterly or annual) net income by the number of shares outstanding. EPS establishes a basic measure of a company's profitability. The EPS value can also be negative if it is a loss year (Ex: Coinbase 2022, Q1 EPS: -1.26).
Example:
After a strong year, ThisIsEmil-AG makes a profit of 4 million euros. A total of 500,000 shares are outstanding. Per share, this results in a profit of 8 euros.
Calculation: 4,000,000€/500,00shares= 8€/share
𝗩𝗲𝗿𝘀𝗰𝗵𝘂𝗹𝗱𝘂𝗻𝗴𝘀𝗴𝗿𝗮𝗱
The gearing ratio indicates how much equity covers the net financial liabilities of a company. The more the company relies on external capital, the higher the debt-equity ratio.
On the other hand, a high debt-equity ratio is not always a bad thing, because the "leverage effect" can occasionally lead to a higher return on equity if the company earns more money from the borrowed capital than it pays in borrowing costs. Leverage should be understood differently depending on the industry. While a debt-to-equity ratio of 10 to 70 percent is typical in most industries, and 100 percent is close to insolvency, a real estate company's debt-to-equity ratio of 150 percent may even be acceptable.
Therefore, this ratio should only be applied to companies in the same industry for comparison purposes.
Example:
ThisIsEmil-AG has a total of €300,000 in equity and €700,000 in debt. As a result, the gearing ratio is 233%. Calculated:
Calculation: 700.000€ / 300.000€ = 233%.
𝗠𝗮𝗿𝗸𝘁𝗮𝗻𝘁𝗲𝗶𝗹
I personally find the market share as a key figure very interesting. It indicates what share of the total market a company reaches with a product or with a service. Increasing market share is the goal of most companies and usually leads to lower costs and thus higher profits due to economies of scale. Of companies that are in niches can be successful even with a small market share. To calculate the market share, the market must first be defined.
For example, according to Statista, the market share for social media for April 2022 was 75.1% for Facebook, Instagram 5.69% and YouTube 5.69%. getquin, of course, is also right up there!
Example:
ThisIsEmil-AG has achieved a turnover of € 10 billion in 2021. With a global market volume of € 15 billion, the AG would have a market share of approx. 66%.
Calculation: €10 billion / €15 billion= 0.667
0,667 x 100= 66,7%
𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄
Cash flow refers to the inflow (or outflow) of liquid assets, such as cash on hand, cash in hand, or checks. The value answers the question, "How much cash was generated?". The important thing to note here is that it is not profit. Chash flow thus indicates a company's financial strength and how dependent a company is on other providers of funds (loans).
On the one hand, there is a direct method of cash flow calculation and an indirect one.
Example:
In the direct method, cash inflows - cash outflows are calculated. ThisIsEmil-AG had only 4 business transactions in the beginning in 2011:
- Revenue for a sale in the amount of 100,000 €.
- Payment of salaries for 60,000 €
- Depreciation in the amount of 15.000 €
- Provision for promise of guarantee 10.000€.
Invoice:
100.000€-60.000€= 40.000€
So this is a cash inflow of 40.000€. Depreciation and accruals are not taken into account, as these are not a payment.
𝗤𝘂𝗲𝗹𝗹𝗲𝗻:
Image: Justin Lane/EPA
Of course, the metrics presented are again just a selection of many. What are your steps in stock analysis? 🤔
