PEB Ratio
|
The PEG ratio is a powerful
formula which compares earnings growth and the Price
Earnings Ratio: Divide the expected long-term growth
rate (in earnings per share) by the current Price
Earnings Ratio. If dividends are significant, add the
Dividend Yield to the growth rate (when calculating the
PEG ratio). PEB Ratio = Average
EPS
growth /
PE
|
|
PEG |
< 1 |
Poor |
|
1 < |
PEG |
|
Good |
|
2 < |
PEG |
|
Strong Buy |
|
Dividend per Share
(DPS)
|
Dividend per share DPS is dividend payout
to stockholder per each
share. Dividend per share (DPS) =
Dividend after Tax
/ Total Shares
|
Dividend Yield on Common Stock
|
The Dividend Yield on
common stock is
computed by divide the DPS per share by its market
price. It shows the current return an investor can
obtain in buying a share. To obtain an idea of the
attractiveness of a share, compare its Dividend Yield
against current fixed deposit interest rates.
Dividend yield on common
stock = Dividend per share /
market price per share
|
Dividend Payout Ratio
|
Dividend payout ratio is percentage of profit that
is paid out as dividend. Dividend payout ratio
= Dividends per share /
Earnings per Share
|
|
Dividend Payout Ratio |
<= 0 |
This company is giving out
dividends
though it incurred a loss. |
|
1 < |
|
This company is paying
more dividends
than it proportionately earned
this period. |
|
Strategic Cash Flow
|
Strategic cash flow is the cash left once
internal growth has been financed. In other words, it is
the cash left either to invest in strategic
developments, or to distribute dividends, or to lower
the debt load. Strategic cash flow
= Cash flow + Cash need variation + Capital expenditure
Cash flow =
Net income +
depreciation,
depletion and amortization.
Cash need =
Inventories +
Receivables -
Payables, the
variation of which from one period to the other is
computed.
Capital expenditure = Tangible and intangible
investments, the variation of fixed assets from one year
to the other being an acceptable approximation.
|
Free Cash Flow
|
Free cash flow provide Specialists in Leverage
Buyouts (or takeovers) to look at this amount in planning
their strategy.
Free cash flow = Cash flow - capital expenditures - dividends
Cash flow = operating cash flow -
interest expense -
income tax expense
Dividends = dividends per share * number of shares
The difference between the levels of fixed assets
over two periods is an approximation for Capital
Expenditure.
|
Degree of Operating Leverage
|
The Degree of Operating
Leverage is the volume of sales, above the breakeven
point, needed to earn a profit. This ratio varies with
the level of sales. In other words, it shows how a
percent change in sales volume will affect profit, at a
specific level of sales. The higher the Degree of
Operating Leverage, the greater the impact of a change
in sales volume on profit.
Degree of operating
leverage
= Contribution Margin /
Net Income, with
Contribution Margin =
Sales - Variable
Costs
You need first to be familiar with the concept of
Variable Costs to determine the Contribution Margin.
Then, you need to distinguish, in the Income Statement,
among those costs that are variable and those that are
not.
|
Index of Sustainable Growth
|
Index of sustainable growth developed by Robert L. Higgins, this
index helps determine the level of growth of sales
beyond which external capital will be needed. In other
words, when planning for a specific growth in sales, one
must be aware of whether external financing will be
needed.
|
g = (X1 (1 - X2) (1 + X3)) / (X4 - (X1 (1 - X2)
(1 + X3))) |
|
X1 =
Profit Margin = (Income before Taxes /
Sales) * 100 |
|
X2 = Dividend Payout Ratio = Total Dividends /
Net Income |
|
X3 =
Leverage = Liabilities / Equity |
|
X4 = (Assets / Sales) * 100 |
|
If Sales growth forecast are above g: |
|
-- External financing (equity or debt) should
be sought after, |
|
-- or the profit margin should be improved, |
|
-- or the distribution of dividends should be
lower, |
|
-- or the level of assets should be lower
(lease instead of buy). |
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Financial Ratios