## What is the Price to Earnings Ratio (P/E Ratio)?

The Price to Earnings ratio is a company’s stock price relative to its net income per share. A low P/E indicates that a stock is trading at a low premium to earnings, which may indicate that the market thinks low relative growth rates are ahead for the company. A company with a high P/E means investors are willing to pay a premium for growth, perhaps anticipating high future growth rates for the company. The P/E ratio is calculated by dividing the market value per share of a company by its earnings per share. Continue reading...

Keywords: P/E,

## What is a Multiple?

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...

Keywords: P/E,

## What is the Price/Earnings to Growth Ratio (PEG Ratio)?

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...

Keywords: P/E,

## What is an Earnings Multiplier?

The earnings multiplier is more commonly known as the P/E ratio (price/earnings ratio). By putting the price of a stock over the earnings per share, you have a proportion that can be compared across various securities with different price points. It may be common for a company in one industry to have a different-size P/E than another, but comparing a company to its peers will prove helpful. Analysts use the P/E ratio to determine whether a stock is overpriced or underpriced, and the same goes for the market as a whole. When the average P/E for all of the stocks in an index is found and compared to historical levels, investors can get clues about whether the current price can be supported for long by fundamentals. Continue reading...

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## What is Intrinsic Value?

Intrinsic Value is the value of a security which is “built into it.” Both options and stocks have it, but it is different for each. Options and stocks have intrinsic value. For options, the intrinsic value is easy to compute, if the option is in-the-money. It is the difference between the strike price of the option and the market price of the underlying security. If an option is out-of-the-money it has no intrinsic value. Continue reading...

## What are Value Mutual Funds?

Value mutual funds are those that invest in companies with strong fundamentals and steady earnings histories. A Value Mutual Fund’s portfolio will typically consist of stocks that are considered to be undervalued and expected to pay out dividends. The stocks held in such funds usually have P/E ratios in-line with or lower than the S&amp;P 500 index, and such companies are usually older and well-established. Continue reading...

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## What is Unlevered Beta?

Unlevered beta measures the Beta (a&nbsp;volatility&nbsp;indicator that denotes how closely an investment follows movements in the market as a whole) of a company when the effects of debt (leverage) are removed, allowing investors to gauge risk strictly as a function of company assets. The beta of a company’s equity stock is a measure of volatility relative to the rest of the market, impacting&nbsp;Price-to-Earnings (P/E)&nbsp;calculations and other valuations. When beta increases, the cost of equity increases, and results in a higher P/E. Unlevering the beta can give a clearer picture of the&nbsp;market risk&nbsp;of a company’s equity shares, as higher debt relative to equity usually constitutes more risk to investors. Continue reading...

Keywords: debt, Beta,

## What are Blend Mutual Funds?

Blend mutual funds offer exposure to both growth stocks and value stocks. Blend mutual funds seek to capture the upside of growth stocks as well as the dividend yield of value stocks. P/E ratios can be used to identify a growth or value stock: where a P/E over about 25 is a growth stock and under about 15 is a value stock. Blend funds are generally considered a good core asset, but are not the same thing as a Core Fund. Continue reading...

## What are Growth Mutual Funds?

Companies that generally have high P/E ratios, high expected growth rates, and that generally do not pay dividends are likely to be found in the portfolio of a growth mutual fund. Growth mutual funds invest in companies that are developing and/or have a high potential for growth, as the name implies. Growth Funds are typically riskier because the companies they invest in have a heightened chance of both profiting and failing. Continue reading...

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## What are Core Mutual Funds?

Core mutual funds represent the middle ground between Value and Growth, but are not the same as Blend funds. Core Mutual Funds are in between Growth and Value funds. In other words, companies in their portfolio have Price to Earnings ratios which are higher than those of Value companies but lower than those of Growth companies. This category is essentially based on the 9-box Morningstar categorization system, which separates equity funds into Small, Mid and Large Cap on the vertical axis and Value, Core, and Growth on the horizontal axis. Continue reading...

## What are Other Mutual Fund Classifications?

Let’s look at some of the classifications for mutual funds that are determined using criteria other than market cap and P/E ratios. What is Mutual Fund Classification According to the Price to Earnings Ratio? What is Mutual Fund Classification According to Market Capitalization? Besides the main classifications for equity mutual funds which are derived from market cap and price-to-earnings ratio, many other categories for mutual funds exist. These criteria may be based on how much exposure a fund has to a specific industry, sectors or geographical regions, as well as the types of management strategies that the fund uses and which kinds of assets are held. Continue reading...

## Should I Trust an Article Such as “Five Awesome Value Stocks?”

Articles that list “great value” buys should be food for thought, but may not put food on your table. Value stocks are those with low Price to Earnings ratios. To say that a particular Value Stock has an “Awesome” value is to say that it has been significantly undervalued by the market. While sometimes the market is ignorant of the growth potential and strong fundamentals of a particular company, the author of such an article would have you believe there is a great big crystal ball in his office. Continue reading...

## What is the S&P 500?

The S&amp;P 500 (also known as the Standard &amp; Poor's 500) is an index of the 500 largest and most important U.S. companies (selected by a special committee). The S&amp;P 500 is a cap-weighted index, meaning the respective weights of companies in the index depends on market capitalization. For example, since Apple Inc. and Google are the biggest companies in the U.S., they affect movements in the S&amp;P 500 more than a smaller company, like Visa. Continue reading...

## What is Enterprise Value?

Enterprise Value is the total cost to acquire a company. The Enterprise Value of a company is the amount that would have to be paid for full ownership of it, which would include market capitalization (price per share x shares outstanding) + net debt (all liabilities - cash and equivalents). Market cap alone is technically just shareholders equity, and not capital from debt, so Enterprise Value adds that in for consideration. Enterprise value is the numerator in EV/E (Enterprise Value over EBITDA), a very common valuation ratio. Continue reading...

## What is the Price to Sales Ratio (P/S Ratio)?

The Price to Sales Ratio, also known as the PSR, is a valuation metric that looks at a stock’s market price versus its per share revenue. Alternatively, you can calculate it by dividing a company’s total market capitalization by its total revenue in the most recent fiscal year. The ratio indicates how much value (how much investors are willing to pay) is placed on each dollar of revenue generated by the company. Continue reading...

## What is the Price to Book Ratio (P/B Ratio)?

The price to book ratio compares a company’s current stock market price to its book value (which is generally speaking a company’s net assets). To calculate, an analyst need only divide a company’s latest market price by it book value, which is calculated by taking ‘Total Assets minus Intangible Assets and Liabilities.’ The P/B ratio gives some idea of what premium an investor is paying if the company went bankrupt immediately. Continue reading...

## A+/A1 — credit rating

A+ — S&amp;P / Fitch A1 — Moody’s In the spectrum of ratings given to bonds and companies, A+/A1 is a very good rating to get, even if it is the 5th rating from the top. The Big Three ratings institutions, which are Fitch, Moody’s, and S&amp;P, give ratings for creditworthiness after inspecting the books of companies who issue bonds. There are credit ratings given for companies and credit ratings given to bond issues. Continue reading...

## AA+/Aa1 — credit rating

AA+ — S&amp;P / Fitch Aa1 — Moody’s Major independent rating institutions such as Moody’s, Fitch, and Standard &amp; Poor’s (S&amp;P) can make or break a company or municipality’s ability to issue debt at a competitive yield. They rank companies and debt issues in terms of the risk of default. Ratings in the A range are considered Investment Grade, which is a rating mostly used by institutional investors. The interesting thing is that there are 7 kinds of A ratings, and they are different between the ratings institutions. We will not list them here, but charts that show the system are readily available online. Continue reading...

## A-/A3 — credit rating

A- — S&amp;P / Fitch A3 — Moody’s Rating institutions assign various levels of credit ratings to signify the chance of default; the A-/A3 rating is considered Investment Grade, but it is getting closer to the Junk Bond range. If a company or debt issue has a rating of A-/A3, it means that S&amp;P and Fitch have given it an A- and Moody’s has given it an A3 rating. They have their own symbology for their ratings system but these are at the same level on both scales: these ratings are at the 6th or 7th degree from the top possible ratings, which is AAA/Aaa. Continue reading...