The 52-week high refers to the highest market price of a given security over a 52-week (one year) period. If you observe the market prices for a given security during a specific period of time, there will be a price that is the highest price over that time period.
The 52-week low refers to the lowest market price of a security over a 52-week (one year) time span. If you observe the market prices for a given security during a specific period of time, there will be a price that is lower than all others.
Also called the residual income model, the abnormal earnings valuation model is a method for predicting stock prices. In this theory, every stock is worth the company's book value per share if investors expect the company to earn a "normal" rate of return in the future.
Abnormal rate of return, also known as "alpha" or "excess return," is the fraction of a security's or portfolio's return not explained by the rate of return of the market.Rather, it is produced from the expertise of the investor or portfolio manager, and is one of the most common measures of risk-adjusted performance.
Abnormal return, also known as "alpha" or "excess return," is the fraction of a security's or portfolio's return not explained by the rate of return of the market.Instead, it is a result of the expertise of the investor.
The accounting rate of return (ARR) is a simple estimate of a project's or investment's profitability that subtracts money invested from returns without regard to interest accrual or applicable taxes. Also called the "simple rate of return," the accounting rate of return (ARR) allows companies to evaluate the basic viability and profitability of a project based on projected revenue less any money invested.
The acid-test ratio is a measure of how well a company can meet its short-term financial liabilities. Also known as the quick ratio, the acid-test ratio can be calculated as follows: Acid-Test Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities A common alternative formula is: Acid-Test Ratio = (Current assets – Inventory) / Current Liabilities The acid-test ratio is a more conservative version of another well-known liquidity metric -- the current ratio.Although the two are similar, the Acid-Test ratio provides a more rigorous assessment of a company's ability to pay its current liabilities.
An acquisition is the purchase of all or a portion of a corporate asset or target company. An acquisition is commonly mistaken with a merger – which occurs when the purchaser and the target both cease to exist and instead form a new, combined company. When a target company is acquired by another company, the target company ceases to exist in a legal sense and becomes part of the purchasing company.
An acquisition premium is the difference between the actual price paid to acquire a company and the estimated real value of the acquired company before the acquisition.It is often recorded as "goodwill" on the balance sheet.
An activity ratio is a metric which determines the ability of a company to convert its balance sheet accounts into revenue. Activity ratios assess how effectively a company is able to generate revenue in the form of cash and sales based on its asset, liability and capital share accounts.
Actual return refers to the nominal return made on an investment during a given period. The actual return on an investment is the actual amount of money gained or lost during a period of time (e.g.a quarter or year) relative to the investment's initial value.
Alpha, also known as "excess return" or "abnormal rate of return," is one of the most widely used measures of risk-adjusted performance.The number shows how much better or worse a fund performed relative to a benchmark.
Altman's Z-score is a financial statistic that is used to measure the probability of bankruptcy. Altman's Z-score is used to determine the likelihood of a company going bankrupt.
Arbitrage pricing theory (APT) is a well-known method of estimating the price of an asset.The theory assumes an asset's return is dependent on various macroeconomic, market and security-specific factors.
The arithmetic mean is the average of a series of numbers. The formula for calculating the arithmetic mean is: Arithmetic mean = (X1 + X2 + X3 + ...
The arithmetic mean average is the average of a series of numbers. The formula for calculating the arithmetic mean average is: Arithmetic mean average = (X1 + X2 + X3 + ...
The ask size is the number of shares that a seller is willing to sell at a given price.For instance, a seller is willing to part with 3,000 of their shares at a specific asking price. People who offer to buy and sell securities are the market makers.
The asset turnover ratio is a measure of how efficiently a company's assets generate revenue.It measures the number of dollars of revenue generated by one dollar of the company's assets. The formula for the asset turnover ratio is: Revenue / Average Total Assets Let's look at an example using the following hypothetical information for Company ABC: Revenue is found on the income statement, and total assets are found on the balance sheet. Using the asset turnover ratio formula and the information above, we can calculate that Company ABC's asset turnover ratio this year was: $1,500,000 / [($975,000 + $1,140,000)/2] = 1.418 This means that for every dollar of Company ABC's assets, Company ABC generated $1.42 in revenue.
A Baby Berkshire is a Class B share of Berkshire Hathaway (NYSE: BRK-B).The term also refers to the act of creating a portfolio of the same companies that Berkshire Hathaway invests in and then buying and selling proportionately when Berkshire Hathaway buys and sells.
Banks use the back-end ratio to determine whether a mortgage applicant is a good credit risk. The formula for the back-end ratio, generally, is: Back-End Ratio = (All monthly loan payments + requested loan’s monthly principal and interest payment + monthly property taxes on proposed real estate + monthly homeowners insurance premium)/Gross monthly income For example, let’s assume John Doe wants to get a $500,000 mortgage that comes with a principal and interest payment of $2,400.
"Bagel land" is a slang term that describes where investments go when their prices approach zero. For example, let's assume that Company XYZ's stock falls from $10 per share to $0.50 per share due to a series of internal scandals and product failures.
A bank efficiency ratio is a measure of a bank's overhead as a percentage of its revenue. The formula varies, but the most common one is: Bank Efficiency Ratio = Expenses* / Revenue *not including interest expense For example, if Bank XYZ's costs (excluding interest expense) totaled $5,000,000 and its revenues totaled $10,000,000, then using the formula above, we can calculate that Bank XYZ's efficiency ratio is $5,000,000 / $10,000,000 = 50%.
Beta is a measure of a stock's volatility relative to the overall market.It is most often calculated using a stock's movements relative to the S&P 500 Index over the trailing 12-month period.
A company's book-to-bill ratio measures the company's number of outstanding orders as compared with the number of shipped or fulfilled orders.The book-to-bill ratio is a valuable tool for measuring the strength of the technology sector.
CAGR stands for compound annual growth rate.A widely-used measure of growth, CAGR is used to evaluate anything that can fluctuate in value (such as assets and investments).
Callable common stock is an equity stake in a company where either the issuer or a third party has the right, but not the obligation, to repurchase the stock at a specific price after a certain date. Let's assume you own 100 shares of Company XYZ callable common stock.
Issuers of callable preferred stock have the right (but not the obligation) to repurchase the stock at a specific price after a certain date. For example, consider Company XYZ preferred stock issued in 2000, paying a 10% rate, maturing in 2020, and callable in 2010 at 102% of par.
The capital asset pricing model (CAPM) is used to calculate the required rate of return for any risky asset.Your required rate of return is the increase in value you should expect to see based on the inherent risk level of the asset.
The cash flow return on investment (CFROI) measures a company's cash return on invested assets.It is determined by dividing a company's gross cash flow by its gross investment.
Cash flow to capital expenditures is the ratio of a company's cash from operations to its capital expenditures for acquiring or upgrading assets, such as buildings or equipment, required to improve or maintain business operations. It is an important measure used by analysts to determine a company's ability to fund operations.
A cash market is a market for securities or commodities in which the goods are sold for cash and delivered immediately.In some cases, "immediate" means one month or less.
The CFA (Chartered Financial Analyst) exam is a professional qualification exam administered as a requirement to earn the CFA designation.The three levels of the exam are offered annually by CFA Institute to financial and investment professionals. The CFA exam was first offered in 1963.
The financial world often refers to compound interest as magic.Compound interest can be thought of as “interest building on interest” which adds to your principal.
A consensus estimate is a shared prediction of a company's quarterly or annual earnings per share. Securities analysts are tasked with the job of making earnings estimates for the companies they cover.
A conversion ratio is the number of one security given for another security (usually a convertible security). For example, convertible preferred stock is preferred stock that holders can exchange for common stock at a set price after a certain date.
Convertible preferred stock is preferred stock that holders can exchange for common stock at a set price after a certain date. Let's assume you purchase 100 shares of XYZ Company convertible preferred stock on June 1, 2006.
Cost of equity refers to a shareholder's required rate of return on an equity investment.It is the rate of return that could have been earned by putting the same money into a different investment with equal risk.
A coverage ratio divides a company's income or cash flow by a certain expense in order to determine financial solvency. Some of the most common coverage ratios include the fixed-charge coverage ratio, debt service coverage ratio, times interest earned (TIE), and the interest coverage ratio.
The current ratio is the ratio of current assets to current liabilities. The current ratio is a commonly used liquidity ratio that measures a company's ability to pay its current liabilities with its current assets.
A debt ratio is simply a company's total debt divided by its total assets. Debt Ratio = Total Debt / Total Assets For example, if Company XYZ had $10 million of debt on its balance sheet and $15 million of assets, then Company XYZ's debt ratio is:Debt Ratio = $10,000,000 / $15,000,000 = 0.67 or 67%This means that for every dollar of Company XYZ assets, Company XYZ had $0.67 of debt.A ratio above 1.0 indicates that the company has more debt than assets.
A company's debt service coverage ratio (DSCR) refers to its ability to meet periodic obligations on outstanding liabilities with respect to its net operating revenue. The debt service coverage ratio (DSCR) measures how effectively a company's operations-generated income is able to cover outstanding debt payments.
An essential formula in corporate finance, the debt-to-equity ratio (D/E) is used to measure leverage (or the amount of debt a company has) compared to its shareholder equity.All companies have a debt-to-equity ratio, and while it may seem contrary, investors and analysts actually prefer to see a company with some debt.
Dilution is a reduction in proportional ownership caused when a company issues additional shares. Let's assume you own 100,000 shares of XYZ Company.
Discounted cash flow (DCF) analysis is the process of calculating the present value of an investment's future cash flows in order to arrive at a current fair value estimate for the investment. The formula for discounted cash flow analysis is: DCF = CF1/(1+r)1 + CF2/(1+r)2 + CF3/(1+r)3 ...+ CFn/(1+r)n Where: CF1 = cash flow in period 1 CF2 = cash flow in period 2 CF3 = cash flow in period 3 CFn = cash flow in period n r = discount rate (also referred to as the required rate of return) To determine a fair value estimate for a stock, first project the amount of operating cash flow the company is likely to produce in the years ahead.
The dividend discount model (DDM) is a method for assessing the present value of a stock based on the growth rate of dividends. The dividend discount model (DDM) seeks to estimate the current value of a given stock on the basis of the spread between projected dividend growth and the associated discount rate.
Investment advisors frequently suggest dollar-cost averaging in their articles and publications, but what does it mean?Why do many advisors believe it is the best strategy?
DuPont analysis examines the return on equity (ROE) analyzing profit margin, total asset turnover, and financial leverage.It was created by the DuPont Corporation in the 1920s.
The DuPont identity breaks down return on equity (ROE) into its components -- profit margin, total asset turnover, and financial leverage -- so that each one can be examined in depth. The DuPont identity is also referred to as DuPont analysis.
An earnings estimate is an estimate of a company's future quarterly or annual profits by a market analyst. Earnings estimates are created by analysts who work for investment research companies.
The earnings yield is the ratio of a company's last twelve months (LTM) of earnings per share (EPS) to its stock price.It is the inverse of the price-to-earnings (P/E) ratio.
An efficiency ratio is a measure of a bank's overhead as a percentage of its revenue. The formula varies, but the most common one is: Efficiency Ratio = Expenses* / Revenue *not including interest expense For example, if Bank XYZ's costs (excluding interest expense) totaled $5,000,000 and its revenues totaled $10,000,000, then using the formula above, we can calculate that Bank XYZ's efficiency ratio is $5,000,000 / $10,000,000 = 50%.
The equity multiplier is a ratio used to determine the financial leverage of a company. The formula for the equity multiplier is: Equity Multiplier = Total Assets / Total Stockholders' Equity If company ABC has total assets of 20 units and total stockholders' equity of 4 units, its equity multiplier is 5 (20/4).Alternatively, company XYZ has total assets of 10 units and total stockholders' equity of 5 units, its equity multiplier is 2 (10/5).
The equity risk premium is the difference between the rate of return of a risk-free investment and the geometric mean return of an individual stock over the same time period.Since all investments carry varying degrees of risk, the equity risk premium is a measure of the cost of that risk.
Event risk is the risk of a negative impact on a company's financial position as a result of an unexpected event like a natural disaster, industrial accident or hostile takeover. Occasionally companies face events that unexpectedly impact their ability to operate or their ability to make debt payments.
Fair value is an estimate of a security's worth on the open market.There is no one way to calculate the fair value for a security, but calculations typically take into account future growth rates, profit margins, and risk factors, among other items. Let's assume Company XYZ stock currently sells for $20 per share.
A falling knife describes a stock which has experienced a rapid decline in value in a short amount of time.Just like a falling knife, you don't want to catch these companies on their way down.
Free asset ratio refers to the net assets of an insurance company as a percentage of its total assets. Free assets are the same as net assets, that is, assets that are not obligated to insurance policies. The formula for calculating FAR is: FAR = (Total Assets – Secured Assets) / Total Assets An insurance company must maintain certain financial reserves on hand to cover its obligations to its policyholders.
The goodwill-to-assets ratio describes the percentage of a firm's total assets that can be explained by the amount of goodwill on the balance sheet. The formula for the goodwill-to-assets ratio is: Goodwill to Assets = Goodwill / Total Assets For example, let's assume Company XYZ has $5,000,000 of goodwill on its balance sheet.Its total assets are $20,000,000.
The Gordon Growth Model (GGM) is a version of the dividend discount model (DDM).It is used to calculate the intrinsic value of a stock based on the net present value (NPV) of its future dividends.
Gross profit margin is a measure of a company’s profitability, calculated as the gross profit as a percentage of revenue.Gross profit is the amount remaining after deducting the cost of goods sold (COGS) or direct costs of earning revenue from revenue.
The interest coverage ratio, also known as times interest earned, is a measure of how well a company can meet its interest-payment obligations. The interest coverage ratio is also referred to as the times interest earned ratio.
Intrinsic value has two primary connotations in the finance world.In the options-trading world, the term refers to the difference between the option's strike price and the market value of the underlying security.
Investing is the strategic purchase or sale of assets in order to produce income or capital gains. Investing can involve the purchase or sale of stocks, bonds, mutual funds, interest-bearing accounts, land, derivatives, real estate, artwork, old comic books, jewelry or anything else an investor believes will produce income (usually in the form of interest or rents) or become worth more.
An investment is an asset that is intended to produce income or capital gains. Investing is the act of using currently-held money to buy assets in the hopes of appreciation.Investing is a way to build wealth in the future.
Joint probability is a type of measure found by calculating the probability of two events happening together.In other words, it’s the probability of event X happening at the same time as event Y, like an intersection of two events.
A key ratio is any financial ratio that is especially important, prevalent, or necessary in analyzing a company's performance in relation to other companies, the industry or the market. Key ratios calculate various pieces of financial data in relation to one another.
Generally speaking, large cap companies have at least $8 billion of market capitalization. Market capitalization refers to the value of a company's outstanding shares.
Margin of safety is the amount by which a company's shares are trading below their intrinsic value. The formula for margin of safety is: Margin of Safety = 1 - Stock's Current Price / Stock's Intrinsic Value Let's look at an example.
The market conversion price is the price at which a convertible security is exchanged for common stock. Convertible securities (for example, convertible bonds and convertible preferred stocks) allow holders to exchange them for shares of the issuing company's common stock.
A multiple is a relative valuation metric used to estimate the value of a stock. Let's look at an example to illustrate the concept.
Net interest margin is the ratio of net interest income to invested assets. Net interest margin is also known as "net yield on interest-earning assets." The formula for net interest margin is: Net Interest Margin = (Interest Received - Interest Paid) / Average Invested Assets Net interest margin is always expressed as a percentage.Let's look at an example: Assume John borrows $1,000,000 and uses it to buy bonds of Company XYZ.
One key indicator of a business success is net operating profit after tax (NOPAT).Considered an “apples-to-apples” measure, NOPAT helps investors determine how well one company is performing versus another in the same industry, regardless of how much debt they use to buy and control assets. Although it may appear to be an arbitrary measurement, every investor searching for a long-term opportunity should look at net operating profit after tax. This comprehensive financial definition has compiled everything you want to know about NOPAT – and how it can help you become a smarter investor. Simply put, net operating profit after tax measures a company’s financial performance without considering the tax savings of debt, since it looks at operating profits exclusive of interest.
Net profits interest is the proportion of net profits paid out to a particular investor, according to his or her percentage stake in the company. Net profits interest is most often used in reference to oil and gas contracts in which the property owners lease the property to a developer or producer in return for a percentage of the proceeds.Let's say that John owns an oil field and wants to lease it to Company ABC, which will then get the oil out.
The null hypothesis (H0) suggests that there is no statistical significance in a given set of observations.This implies that any kind of deviation or importance you see in a data set is only the result of chance. This is considered to be true until analytical evidence proves it wrong and replaces it with a different, alternative hypothesis (H1).
The operating cash flow ratio is cash from operating activities as a percentage of current liabilities in a given period. Operating cash flow ratio is generally calculated using the following formula: Operating Cash Flow Ratio = Operating Cash Flow / Current Liabilities The operating cash flow ratio is not the same as the operating cash flow margin or the net income margin, which includes transactions that did not involve actual transfers of money (depreciation is common example of a noncash expense that is included in net income calculations but not in operating cash flow).The operating cash flow ratio is also not the same as EBITDA or free cash flow.
The operating expense ratio (OER) is equal to a company's operating expenses divided by its revenues.The measure is very common in real estate analysis, whereby analysts are measuring the costs to operate a piece of property versus the income it generates. OER = Operating Expenses / Revenues Let's assume Company XYZ's operating expenses in 2019 were $2,000,000 and its revenues were $10,000,000.
Operating leverage is the ratio of a company's fixed costs to its variable costs. Here is the formula for operating leverage: Operating Leverage = [Quantity x (Price - Variable Cost per Unit)] / Quantity x (Price - Variable Cost per Unit) - Fixed Operating Cost To see how operating leverage works, let's assume Company XYZ sold 1,000,000 widgets for $12 each.It has $10,000,000 of fixed costs (equipment, salaried personnel, etc.).
Operating ratio is the ratio of operating expenses to net sales.Operating ratio is also a common term in the insurance business, where it refers to an issuer's profit from underwriting and investment activities.
Opportunity cost is the return on an investment/opportunity you missed out on, compared to the return on the investment that you chose.To determine what was lost (or gained), opportunity cost may be calculated as a number or a ratio.
Orphan stocks is a colloquial term for stocks that analysts and investors seem to disregard. Orphan stocks are stocks that investors and analysts tend to ignore.
Paper loss refers to the amount that would be lost on a security if it were sold. Also called a book loss, a paper loss is the not-yet-realized amount lost on a security based on the spread between its current market price and its original purchase price.
Paper profit refers to the amount you would gain on a security if it were sold. Also called book profit, paper profit is the not-yet-realized amount gained on a security based on the spread between its current market price and its original purchase price.
A passive loss is a financial loss from rental property, limited partnership or other activities in which the investor is not materially involved. When an investor buys shares in a rental property, for example, in which he or she is not actively involved in the operations, it is considered a passive investment.
The payout ratio, also known as the dividend payout ratio, is the percentage of a company's earnings paid out to investors as cash dividends. At the end of a specified period, companies will sometimes pay out dividends for every share owned.
Premium to net asset value (NAV) refers to a situation where shares of a closed-end stock fund are trading at a price higher than the fund's net asset value per share.For example, a fund could be described as "trading 5% premium to NAV." Premium to NAV (and "discount to NAV") is most often used to describe the price per share of closed-end stock funds.
Present value (PV) measures the current value of an amount of money – or a stream of cash flows – that is expected in the future.This value will differ from the cash flows’ nominal value, since time itself affects value.
Price efficiency simply refers to whether the price of a security incorporates all the available information about the security. For example, assume that Company XYZ is a public company trading at $15 per share.
A price multiple is a ratio that combines some measure of a company's performance and the company's stock price. In general, a price multiple ratio looks like this: Price multiple = Price / Performance Metric For example, Company XYZ has revenue of $20,000,000 per year.
The price-earnings relative is a comparison of a stock's P/E ratio to the cumulative P/E ratio of a related market index. The price-earnings relative considers the P/E of a given stock relative to the P/E ratio for a comparable market index, such as the Dow Jones or S&P 500.
The price-to-book ratio measures a company's market price in relation to its book value.The ratio denotes how much equity investors are paying for each dollar in net assets.
The price-to-cash flow ratio (P/CF) is used to evaluate the price of a company's stock as compared to the amount of cash flow it generates. The formula for the price-to-cash flow ratio is: Price-to-Cash Flow Ratio = Price per share / (Cash flow / Shares outstanding) For example, let's assume that Company XYZ has a share price of $3 and has 10,000,000 shares outstanding.
The price-to-earnings ratio (P/E) is a valuation method used to compare a company’s current share price to its per-share earnings. The market value per share is the current trading price for one share in a company, a relatively straightforward definition.
The price-to-free cash flow ratio (P/FCF) is a valuation method used to compare a company’s current share price to its per-share free cash flow. The formula for the price-to-free cash flow ratio is: Price to Free Cash Flow = Market Capitalization / Free Cash Flow For example, let's assume that Company XYZ has 10,000,000 shares outstanding, which are trading at $3 per share.
The price-to-innovation-adjusted earnings ratio is used to evaluate the price of a company's stock as compared to its earnings when adjusted for the amount the company spends on R&D. The formula for price-to-innovation-adjusted earnings is: Price-to-Innovation-Adjusted Earnings = Price per share / (EPS + R&D per share) For example, let's assume that Company XYZ, a company that designs and manufactures medical devices, earned $10,000,000 in profits last year.
The price-to-research ratio is used to evaluate the price of a company's stock as compared to its ability to generate future profits from new products. The formula for the price-to-research ratio is: Price-to-Research Ratio = Market Capitalization / R&D Expense For example, let's assume that Company XYZ spent $5,000,000 on R&D last year.
The price-to-sales ratio helps determine a stock’s relative valuation.The formula to calculate the P/S ratio is: P/S Ratio = Price Per Share / Annual Net Sales Per Share Let's assume Company XYZ reports net sales of $5,000,000 and it currently has 500,000 shares outstanding.
The price-to-tangible book value ratio measures a company's market price in relation to its tangible book value.The ratio denotes how much investors are paying for each dollar of physical assets.
The price/earnings-to-growth and dividend yield ratio (PEGY) demonstrates how much the market is willing to pay for earnings growth and dividend yield.By incorporating dividend yield, the PEGY ratio accounts for a companies' inclination (or disinclination) to pay out dividends.
The PEG ratio is a derivative of the P/E ratio that takes into account future growth in earnings. The formula for the PEG ratio is: PEG Ratio = Price-to-Earnings (P/E) Ratio / Annual Earnings Per Share Growth The PEG ratio uses the basic format of the P/E ratio for a numerator and then divides by the potential growth for the stock.The two ratios may seem to be very similar but you can see the obvious difference with a calculation.
Pro rata refers to the proportional distribution of a sum across a number of units. A Latin term meaning "in proportion," pro rata is a method of allocating fractional amounts of something equally among all parts of a whole.
The put/call ratio is a popular sentiment indicator based upon the trading volumes of put options compared to call options.The ratio attempts to gauge the prevailing level of bullishness or bearishness in the market.
A quartile is one of four equal parts. For example, if we were to look at all of the closing prices for Company XYZ stock for every day in the last year, the top 25% of those prices would represent the upper quartile of the data.
The quick ratio (also known as the acid-test ratio) offers insight into how well a company can meet its short-term obligations.As in chemistry, an acid test provides fast results, showing how quickly a company can convert short term assets to pay short term liabilities.
A quintile is one of five equal parts. For example, if we were to look at all of the closing prices for Company XYZ stock for every day in the last year, the top 20% of those prices would represent the upper quintile of the data.
Ratio analysis is the exercise of calculating various pieces of financial data in relation to one another. There are dozens of financial ratios out there.
Also called the abnormal earnings valuation model, the residual income model is a method for predicting stock prices. In this theory, every stock is worth the company's book value per share if investors expect the company to earn a "normal" rate of return in the future.
A retracement is a temporary reversal in the movement of a stock's price. Let's say the stock of company XYZ increased 20% over the course of a day.Anyone who has ever looked at a trend line knows that the price is unlikely to rise continuously throughout the course of the day.
Return on invested capital (ROIC) is a profitability ratio.It measures the return that an investment generates for those who have provided capital, i.e.
ROI (or return on investment) measures the gain/loss generated by an investment in relation to its initial cost.ROI allows the reader to gauge the efficiency and profitability of an investment and is often used to influence financial decisions, compare a company’s profitability, and analyze investments.
Return on total capital is a profitability ratio.It is a measure of the return an investment generates for those who contribute capital, i.e.
Revenue per available room, or RevPAR for short, is a ratio commonly used to measure financial performance in the hospitality industry.The metric, which is a function of both room rates and occupancy, is one of the most important gauges of health among hotel operators.
The term sales per share represents the portion of a company's revenue that is allocated to each share of common stock.The figure can be calculated simply by dividing sales earned in a given reporting period (usually quarterly or annually) by the total number of shares outstanding during the same term.
The sales to cash flow ratio measures the level of a company's sales against its total cash flow. Expressed on a per-share basis, the sales to cash flow ratio is calculated by dividing a company's sales volume per share in a given period by its per-share cash flow.
The Sharpe ratio is measure of risk.It is named after Stanford professor and Nobel laureate William F.
A short interest ratio is the number of shares or units of a security that have been sold short and not yet covered or repurchased.It is typically expressed as a percentage of the average daily trading volume.
Short interest theory suggests that a high level of short interest indicates an imminent rise in the price of a stock. Short interest theory posits that a high number of outstanding short positions on a stock predicts that a rise in the stock's price is likely to occur in the near future.
In investing, a short sale occurs when an investor sells a stock they don’t own yet.They borrow the stock from a broker-dealer and ideally sell it at a high price.
The speculation index measures the volume of trades on the American Stock Exchange (AMEX) versus trade volume on the New York Stock Exchange (NYSE). The AMEX tends to list riskier stocks issued by smaller companies that are starting up or are trying to grow.
Standard deviation is a measure of how much an investment's returns can vary from its average return.It is a measure of volatility and, in turn, risk.
The street expectation is the commonly-held estimate of a company's future performance by market analysts. Market analysts consider economic conditions, consumer sentiment, research and development, new products, competition, management efficiency and a whole host of other industry-specific factors to establish their expectation.
Survivorship bias occurs when companies that no longer exist -- due to bankruptcy, acquisition or any other reason -- are not accounted for when calculating investment returns. For example, suppose an investor is researching returns on Portfolio XYZ over two consecutive years: 2006 and 2007.In 2006, the portfolio is comprised of Stock A, Bond B and Mutual Fund C.
Tail risk is the risk that an investment will change by more than three standard deviations from its mean. Standard deviation is a measure of how much an investment's returns can vary from its average return.
Tax gain/loss harvesting is a strategy for reducing taxes. John Doe made two major investment transactions this year: 1.
The Texas ratio was developed by RBC Capital Markets' banking analyst Gerard Cassidy as a way to predict bank failures during the state's 1980s recession.The ratio is still widely-used throughout the banking industry.
Timeliness is a ranking criterion of stocks based on the likely price performance of a stock over a short time period – usually less than 12 months. Stocks are ranked on a 1 - 5 scale, with one the highest achievable score.
A torpedo stock is a stock that rapidly loses market value and follows a downward trend without any sign of recovery. Torpedo stocks are named for the manner in which a ship descends, sinking into the sea following a torpedo attack on its hull.
Toxic waste is an idiomatic expression referring to high-risk assets with reputedly low liquidity. Named in reference to the hazardous byproducts of industrial processes, toxic waste frequently describes the riskiest tranches of many collateralized mortgage obligation mortgage obligations (CMOs).
A company's stock "trades below cash" if its market capitalization is less than the difference between its cash holdings and its liabilities. Trading below cash can be illustrated by a company which holds $1m in cash reserves, has $500k in outstanding liabilities, and has a total market capitalization equal to $400k.
The term underperform refers to an analyst recommendation that a stock is expected to do slightly worse than the overall market return. Analysts regularly evaluate and project stock performance.
Undervalued describes a security for which the market price is considered too low for its fundamentals.Some metrics used to evaluate whether a security is undervalued are P/E ratio, growth potential, balance sheet health, etc.
An unrealized gain represents the increase in the value of an asset that has not been sold.This concept is often called paper profit.
An unrealized loss is a paper loss from holding an asset that has lost value but has not yet been sold. Unrealized losses are losses in asset value, but not cash value.
Wallpaper is slang for a security with minimal to no market value. Once a security becomes worthless, its hard documentation (for example, its stock certificate) no longer has any practical function.
A company's working ratio measures its ability to cover its annual expenses. A company's working ratio indicates whether or not it is capable of at least breaking even by dividing its annual expenses by its annual revenues as shown: Working Ratio = Yearly Expenses – (Debt + Depreciation) / Yearly Gross Revenue A company with a ratio of 1 or less is capable of covering its expenses.