PMG Ratio Help:
P/E: A company’s share price against the earnings per share, this tells how much an investor is
willing to pay for each dollar of earnings they receive. It good to be high here indicating it’s a
good stock to buy but you must look at how the company is growing and what the industry is
like before anything. Low P/E can mean that with the market the company may head into
trouble.
EV/EBIT: Used to value fair market value, it compares equivalent companies in order to look at
the risk of investing, alternative to P/E ratio, if the ratio is high, it suggests growth, includes
debt in valuing the share on if it’s too expensive or cheap
EV/EBITA: Also values a company, looks at the firm like an acquirer would, incorporates all debt,
low is undervalued
P/S: Price to Sales Ratio, compares a company’s stock price to its revenues, indicates the value
placed on each dollar of a company’s sales or revenues, most relevant in comparing company’s
in the same sector. Tells if selling at premium in compared to its sister company’s
P/B: Price to Book ratio compares a stocks market value to its book value, if its lower it could
indicate the stock is undervalued, suggested possibly by estimates in future cash flows. If below
1 it can indicate financial distress.
Div Yield: Typical dividend per share annually, usually a percentage, higher means higher
dividends
Gross Margin: Total sales minus cost of goods sold, how much revenue was the company able
to retain before taking out expenses, want to be higher
EBITA Margin: Measurement of a company’s operating profitability, the higher the margin the
lower the expenses they have in relation to revenue, want high
Operating Margin: Measures a company’s pricing strategy and operating efficiency, what
proportion of a company’s revenue is left over after paying for variable costs of production,
how much profit does the company actually retain, higher better off
Profit Margin: How much for each dollar of sales does the company keep in earnings, not all
profit margins tell the whole story, low may show market or industry problems
Return on Assets: profitability in relation to assets, highly dependent on the industry, compare
against previous ROA of ROA of similar companies, want high
Return on Equity: Net income as a percent of shareholders equity, measures profitability by
showing how much profit the company makes with the money shareholders invested. This can
be manipulated to show how some company’s use dividends and estimate the return on
investment
Current Ratio: This ratio determines the company’s ability to pay back their liabilities with their
assets. Rough measurement of health, want higher because they have a better ability to pay off
all liabilities with their assets
Quick Ratio: Short term liquidity, how can a company meet it short term obligations with the
most liquid assets, however no inventory is included, $ of liquid assets, want this ratio to be
higher demonstrating a better liquidity position
EBIT/Interest: How easily can a company pay interest on outstanding debt, also known as times
interest earned, want higher, the lower the rate the more burden of debt the company has
Tot Debt/ Capital: Leverage, not the best ratio to look at, some debt may be crippling them
Tot Debt/ Equity: Indicates how much debt a company may use to finance its assets relative to
its shareholder’s equity, high means the company has been aggressive in in financing growth
with debt, means higher risk, can affect earnings as well as add interest expense
Eff Tax Rate: What the company or individual is taxed
Market Caps: Total dollar market value of a company’s outstanding shares, used to determine a
company’s size and characteristics that investors look at
Income Statement:
Here it is important to look how the company is grown, or look what losses were taken. In
looking at this information it is really helpful to research the company and see what was
happening at those times, see what happening now and attempt to understand why they are
estimating the data the way they are.
Remember, the income statement just tracks revenues and expenses, so make sure you watch
out and learn which expenses may be highest and see if its possibly something that is going to
grow within the next couple years.
Look at what the dividends are paying and what the changes within the past couple years have
been
Balance Sheet:
This is a good way to breakdown the data in which the ratios use, it gives you open access to
see if people are investing in the company as well as if they are taking on mass loads of more
debt and if they are gaining more assets. This is also a good place to look at it over the years
more people have invested in the company and an opportunity to research why it would be a
good investment during that time and determine what is going on right now with said
company.