A multiple is a measure of a stock’s value, calculated by comparing one metric to another. The most common is the metric comparing a stock’s price to its earnings. The most commonly used ‘multiple’ calculation is price to earnings, or P/E. This tells you the price of stock relative to its earnings per share. P/E’s are most useful when comparing stocks in the same industry or sector. For instance, a P/E of 25x may seem high to most, but it’s actually quite normal for stocks in the technology sector. Continue reading...
If all the convertible securities a company had issued were converted at once to common stock, the stock would be diluted; Diluted EPS reveals by how much. Companies will sometimes entice investors to buy bonds or preferred stock by giving them an option to convert them into shares of common stock. If a bond is converted, shareholders equity increases on the balance sheet and liabilities go down, since a debt liability is being retired. Continue reading...
Dilution is the disassociation of value from current common stock shares due to the issuance or conversion of additional shares of the same company into the market, causing value to be reallocated. If a company issues a follow-on (aka Secondary) issue of shares, or if many holders of convertible shares decide to use their conversion privilege, the share price will be diluted. Each share’s value will decrease because there are now an increased number of shares dividing up the same amount of earnings that the company generates. Continue reading...
EPS is derived by taking the net income of a company and dividing it by the share price. That gives an individual investor an idea of how much growth was captured by their shares. Earnings per share is one of the main articles that is announced by the quarterly reports given by companies to their investors. Earnings per share does not mean that each share has appreciated a certain amount, but if the quarterly reports in earnings seasons stir up demand for the shares based on solid fundamentals at a company, it can result in a higher price per share. Continue reading...
Fully Diluted Shares are a calculation used to show how much the existing shares of common stock could potentially be diluted if all the convertible securities and employee stock options, were exercised. Fully Diluted Shares is a calculation used to show the potential number of shares that could hypothetically be called into existence instantaneously by the holders of convertible securities, warrants, employee stock options and so forth. Continue reading...
Earnings are the net revenue of a company after expenses and, sometimes, taxes. Also known as profit. Corporate earnings are an important metric for individual companies and the economy as a whole, because it shows how much money has been made. Revenue is the inflow of money to a company, and earnings are the net revenue, or profit, after expenses have been taken out. Of course there is also EBITDA, which is Earnings Before Interest Taxes Depreciation and Amortization, but this is a non-GAAP method. Earnings are usually calculated on a quarterly basis. Continue reading...
Dividend payments are allocated on a per-share basis. The company issuing them may announce the dividend in terms of the dollar value, but investors and analytical services will translate that into a percentage yield. When calculating the dividend from a company perspective, the total dividend amount that they are comfortable declaring is divided by the number of outstanding shares. The dividend per share is an important number, and the growth of this number is the dividend growth rate. Continue reading...
Earnings that are reported in a given year may differ for the same company if different accounting methods were used. Earnings are the revenues of the company minus the cost of good sold, expenses, and investment losses. If that seems like something that’s pretty cut-and-dried, and will look the same no matter who is doing the accounting… well, that’s not entirely correct. Earnings can be made to look different if different non-GAAP or pro-forma methods are used. If non-recurring expenses are ignored or amortized in a pro-forma accounting method, then earnings will not match up to the GAAP-based books. Continue reading...
Outstanding shares refers to all of the shares of company held in total, which includes all ownership - retail investors, institutional, the company’s officers, insiders, and so on. Outstanding shares are listed on the balance sheet under “Capital Stock,” and are used in calculating market capitalization, earnings per share, and other critical per share calculations. The amount of outstanding shares can fluctuate over time on the basis of corporate actions, such as share buybacks (reduces overall count) or new share issuance (increases overall count). Continue reading...
An Accelerated Share Repurchase (ASR) is a method by which companies can buy back a significant amount of their outstanding shares with the help of an investment bank. By enlisting the help of an investment bank to accelerate a buy-back, a company can cleanly retire a large bulk of shares at once. These agreements have come into use in the last 10 years, and there is of course some variation in their composition. They fall under a category of buybacks known as structured buybacks. Continue reading...
When a company decides to use excess cash to purchase its own shares from the market, it is called a buyback or “share repurchase program.” There are only so many things a company can do with earnings in excess of their projections; among these are issuing a dividend, paying off debts, expanding, acquiring another company, or buying back shares of its own stock. Buybacks are also known as Stock Repurchase Agreements. There may be guidelines in state law or the company’s contracts or buy laws that determine what options they have and how many shares can be repurchased. Continue reading...
A secondary offering is the sale of a large block of previously-issued, privately-held stock, which actually requires registration with the SEC, but does not raise capital for the company which issued the shares originally. A secondary offering is a non-dilutive sale of existing shares which were previously held by one, or a few, investors. The proceeds of the sale go to the sellers of the shares and not to the company which issued the shares. Continue reading...
An earnings call is when a company opens up a teleconference line or webcast that the public can join to hear the company management talk about how the company performed recently, their plans for the future, and the market forces that exist in the current environment. Most publicly traded companies today have adopted this practice. Earnings calls may take place once a year or during earnings seasons after the quarterly earnings have been announced in a press release. Companies often have one executive whose job is to interface with the shareholders in such settings, but various executives are often given a chance to present some thoughts. Continue reading...
Earnings season describes not one, but four times in a year, when corporations release their quarterly earnings reports. Investors look forward to this time because they are able to get an update about how the year is going, compared to projections. After each fiscal quarter ends, there are a few weeks in which companies file their quarterly reports with the SEC and announce their current earnings and sales numbers. Each of these periods is known as earnings season. Continue reading...
Earnings is another word for the net income of a company. It is one of the most important numbers in corporate finance. If a company cannot show earnings, and growth in earnings, investors aren’t going to stick around. Earnings are normally computed as revenue minus taxes and expenses. It is synonymous with net income. Earnings is a positive cash outlay for the year, which means the company is not operating at a deficit. Continue reading...
The Price/Earnings to Growth Ratio (PEG Ratio) is used to determine a company’s value relative to its expected growth. The PEG ratio can be calculated by dividing a company’s P/E by its annual earnings per share growth. A lower PEG ratio may indicate that a company is undervalued relative to its expected growth, and a general rule of thumb is that a PEG ratio below 1 is favorable. Continue reading...
Earnings per share (EPS) is a crucial financial metric used by investors, analysts, and financial professionals to assess a company's profitability and gauge its value in the market. It quantifies the portion of a company's profit that is attributable to each outstanding share of common stock. In this article, we will delve into the intricacies of EPS, its calculation, uses, variations, and its significance in evaluating a company's financial health. Continue reading...
Unlock the secrets of Basic Earnings Per Share (EPS) and its profound impact on financial analysis. From valuation to dividend distribution, delve into the multifaceted world of EPS. Ready to decode one of finance's most pivotal metrics? Dive in! Continue reading...
Earnings estimates are generally consolidated estimates which are averages of the estimates given by a number of market analysts. Companies give their own guidance on earnings estimations, and they will have their feet held to the fire, so to speak, if they are consistently off with their guidance, but most people will, rightly, give more weight to the consolidated estimates of outside experts. Earnings estimates on a publicly traded company will come from an array of industry analysts, and are normally consolidated into a single average estimate or range. The range might or average will certainly affect the trading prices of the stock, but not as much as adjustments to estimates will. Continue reading...
Times Interest Earned (TIE) is also known as the interest coverage ratio, is a cash-flow analysis that compares the pre-tax earnings of a company to the total amount of interest payable on their debt obligations. A healthy ratio indicates that a company will probably not default on loan repayments. To compute this ratio, divide a company’s annual income before taxes by their annual interest payments on debt obligations. This ratio is not concerned with the actual principal due on loans since the principal amount is already pegged to some of the assets on the books of the company, and other fundamental equations will already factor that in. Continue reading...