P/B Value Price-to-equity or Market-to-Book ratio. P/B<1 Investor gets less than invested.
P/B=1 Investor gets back investment.
P/B>1 Investor gets more than invested amount P/B>3 Popular growth stock with high growth for minimum book value, can expect good returns P/B= Market capitalization /Total book value. Used To compare banks. Higher value, higher profit . Book value cannot be considered for companies with intangible assets like Microsoft etc Book Value = Assets- (intangible assets+preference shares)
(AND)
ROA:
High Initial Investment : Low ROA Because Low growth after EBITDA. Consider for new companies, do not use for old companies for properties etc will valued high when compared to acquisition cost. 3) PEG( Price earning growth) PEG>1 Overvalued PEG =0 – 1 indicates good return of money PEG=1 fair value PEG<1 Undervalued Negative PEG = bad signal for decline.
PEG ratio is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. Cannot be used for low growth companies. Should be used for high growth companies. Can be used for small market caps and misleading for big caps PEG= (Price/Earnings)/Annual EPS Growth
4)Earnings growth Earnings Growth :15% - 30 % per year is desirable
Earnings Growth >30% is hard to keep up the same and they have good reputation and actively traded
5)Return On Equity (ROE)- Net Income after tax /Share holders equity.
should be between 15% & 20 %
Used to compare companies in the industry
ROAE (Return on average Equity) - ROE and ROAE should be somewhat similar or nearer to each other
6) Alpha- active return on investment
- αi
< 0: the investment has earned too little
for its risk (or, was too risky for the return)
- αi = 0: the investment has earned a
return adequate for the risk taken
- αi
> 0: the
investment has a return in excess of the reward for the assumed risk
Return may be 20% but negative alpha
means high risk involved
7)Beta- Comparison with
overall market return
B<1 Low risk
B=1
balanced (Original market beta)
B>1 High Risk
Higher Beta higher risk. It can be in
negative also with normal returns
8) Debt To equity (D/E Ratio)
DE ratio <1 good low risk
DE ratio =1 is no problem
DE ratio >1 not considerable
(OR)
Debt to Equity <25% very good
Debt to Equity 25-35 acceptable
Debt to Equity 35-50 % low risk
Debt to Equity >50% high risk, it has chances of wiping off cannot predict its position in
the market.
DE denotes growth and return indirectly.
9)Institutional ownership- 5%-65%
5-30% normal popularity
30-50% well known
50-65% good reputation
Most well known stock has 40%
institutional ownership. Percentage institutional ownership is the percentage
of outstanding shares that are owned by mutual funds, pension plans and other institutional investors
11)Dividend Cover
DC<1 company is using
retained earnings.
DC <1.5 is Risky
DC >2 is highly advisable
Dividend cover =EPS/DPS (earnings
per share/Dividend per share)
(EPS=Net Income/Total shares)
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