Fundamental

Predicting the Future Earnings of a Company

The value of a stock is driven by the assets the company currently owns and, more importantly, the future earnings of the company. For this reason, accurately projecting future earnings, and discounting those earnings appropriately to today’s dollars, is critical in arriving at the true or “intrinsic” value of a stock.

Looking at Past Earnings [...]

Basic Stock Valuation Methods

Stock valuation is a process undertaken by stock investors to arrive at the real or “intrinsic” value of a share based on data collected from the company’s financial statements. While there are a number of different approaches for this, they all revolve around assigning a value to the stock today based on the future [...]

The Importance of the Company Balance Sheet to Investors

The company Balance Sheet is a financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. The balance sheet is one of the three important financial statements for a company (the Income Statement and the Cash Flow Statement being the other two). In analyzing the balance sheet, investors [...]

Understand and Calculate the Price-to-Cash-Flow Ratio

The Price-to-Cash-Flow Ratio (P/CF) compares a company’s market value to its cash flow. In general, the lower a company’s P/CF, particularly with regard to the company’s industry average, the more likely that the stock may be undervalued. Like the Price-to-Earnings Ratio (P/E), the P/CF measure provides an indication of relative value. Unlike earnings, [...]

What Insider Buying and Selling Can Tell Investors

Insider buying or selling refers to the purchase or sale of company stock by a corporate insider. Numerous studies have shown that when insiders buy and sell shares of their own companies, they typically fare better than most stock market investors. SEC rule dictates the parameters in which insiders may engage in company stock [...]

The Income Statement and Fundamental Analysis

A company’s income statement is a record of its earnings or losses for a given time period. It shows the revenues and expenses for the company for this time period. The income statement is the one of the three primary financial statements, the others being the balance sheet and the statement of cash flows. [...]

“Market Cap” and Stock Investing

A company’s market capitalization or “market cap” is its total dollar market value of all of its outstanding shares. The market cap is determined by multiplying the stock price by the total number of outstanding shares. This gives you the total value of the company on the open market. For example, if a company [...]

The Price/Earnings (P/E) Ratio: Definition and Use

The P/E ratio (price-to-earnings ratio) measures the price of a share relative to company earnings company earnings on a per share basis. A higher P/E ratio indicates a willingness by investors to pay more for a unit of income. The measure is most valuable when viewed over time for the emergence of a trend. [...]

Analyzing Free Cash Flow for Stock Valuation

Free Cash Flow (FCF) represents the cash that a company has generated after paying out expenses (salaries, bills, interest on debt, taxes, etc.). As such, it is a measure of the profitability of a company’s operations. FCF is calculated by subtracting capital expenditures from cash flow from operations.

Free cash flow is important to [...]

The PEG Ratio in Stock Valuation

The PEG Ratio (Price/Earnings to Growth), popularized by Peter Lynch in his book, “One Up on Wall Street”, is a measure of valuation that analyzes the relationship between stock price, earnings per share, and the expected growth of the company. The theory is that a fairly-priced stock will have a PEG of 1, while [...]