Anything on a company's books considered as having a posiaaative
monetary value. Assets include all things like holdings of obvious
market value (cash, real estate), (inventory,
aging equipment), and other quantities (pre-paid expenses,goodwill)
considered an asset by accounting conventions but possibly having no
market value at all.
Per-share value of shareholders' equity excluding goodwill and
other intangible assets.
Cash flow is essentially the movement of money into and out of your
business; it's the cycle of cash inflows and cash outflows that
determine your business' solvency.
Cash flow analysis is the study of the cycle of your business' cash
inflows and outflows, with the purpose of maintaining an adequate
cash flow for your business, and to provide the basis for cash flow
Compound Annual Growth Rate - CAGR
The year-over-year growth rate of an investment over a specified
period of time.
The compound annual growth rate is calculated by taking the nth root
of the total
percentage growth rate, where n is the number of years in the period
being considered. This can be written as follows:
A company's debt divided by its equity . This ratio is used as a
relative measure of debt, but it
isn't always useful since equity is a complicated number. It's
sometimes better just to look at a
company's total debt per share, which you can either look up or
calculate since Debt per share =
eps/ roe x Debt/Equity:
Method to account for assets whose value is considered to decrease
The total amount that assets have depreciated by during a reporting
period is shown on the cash
flow statement , and also makes up part of the expenses shown on
the income statement . The
amount that assets have depreciated to by the end date of the period
is shown on the balance sheet.
Earnings Before Interest and Taxes; intended to be a measure of the
amount of cash generated
by a company's operation
Earnings Before Interest, Taxes, Depreciation, and Amortization;
intended to be a measure of the
amount of cash generated by a company's operations (but leaving out
the costs of financing and
taxes - the "I" and the "T").
The danger with EBITDA is that if the "D" and "A" represent a "using
up" of an asset that will have
to be replaced in the future, then they really are operations-
related expenses, making EBITDA too liberal a number.
Economic Value Added, a measure of the superiority of the return a
company is able to realize on
invested capital above the baseline return expected by the
investment community. The formula is
EVA = NOPAT - ( C x Kc )
where C is the amount of capital a company plans to invest in a
project, and Kc is the cost of
capital, i.e. the return rate expected by investors. Positive EVA
means the project will add value
for shareholders; negative EVA means they would be better off if
management just gave them the
money as a dividend.
EVA is analogous toearnings; but where earnings expenses debt
financing only, the C x K term
in EVA is expensing the cost of all capital, equity as well as debt.
The portion of a company's assets that the shareholders own, as
opposed to what they've
borrowed: equal to total asset minus liabilities. Also
called "owners' equity" or "shareholders' equity".
An obligation to pay. These include accounts payable, and bond and
Liabilities are shown on the balance sheet Note that a liability is
not necessarily an evil thing for a
company. Technically it's just an asset that they have temporary
control over but don't own. If it's
a useful asset and if the cost of "borrowing" it is cheap, then a
liability can be a positive thing.
One example: if a retailer sells a gift certificate, they have to
show a liability for the value of the
merchandise they will be obligated to hand over when the giftee
shows up to redeem it; but in the
meantime they already have the cash the gifter paid, and they can
use it any way they want -- this
liability is really an interest-free loan
Expenses associated with running a business but not considered
directly applicable to the current
line of goods and services being sold. These include Sales and
Marketing, R & D, and General
and Administrative costs (including the salaries of people working
in these areas).
Operating Income is the pre-tax, pre-interest profit from the
Operating profit margin
Ratio of operating income to sales revenue
The ratio of a stock price to its company's annual earning per share
Return on Assets
Earning divided by total assets
This number tells you "what the company can do with what it's got",
ie how many dollars of profits
they can achieve for each dollar of assets they control. It's a
useful number for comparing
competing companies in the same industry. The number will vary
widely across different
industries. Capital-intensive industries (like railroads and nuclear
power plants) will yield a low
return on assets, since they have to own such expensive assets to do
business. (And if they have
to pay a lot to maintain these assets, that will cut into the ROA
even more, since the maintenance
costs will decrease their earnings). Shoestring operations (software
companies, job placement
firms) will have a high ROA: their required assets are minimal.
Return on Equity
Earning divided by equity
The idea is that this tells you the number of dollars of profits the
company can earn for each dollar
of shareholders' equity; but return on asset is probably a better
number to look at. (After all, their
profitability is a function of all assets they control, not just of
the equity portion of assets. Note that
ROE is bigger than ROA, since equity is a subset of assets).