ruly Glossary of indicators
Every indicator used in the strategies: definition, formula, where to find it in an annual report, common thresholds and pitfalls.
- Competitive advantage: how to recognize a lasting edge
What a durable competitive advantage is, its most common forms, the traces it leaves in an annual report, and the traps to avoid when you assess one for a company.
- Current ratio: paying the debts due within a year
Definition of the current ratio, its formula, where to find current assets and liabilities in an annual report, usual thresholds by sector, and the traps of reading it.
- Dividend growth: measuring the rise in income paid out
How to calculate the average annual growth of the dividend per share, where to find it in an annual report, usual thresholds, and the traps of special dividends and splits.
- Dividend track record: counting the years of increases
How to count consecutive years of dividend increases, where to find the history in annual reports, usual thresholds, dividend indices and the traps of a long streak.
- Dividend yield: income measured against the share price
Definition of dividend yield, its formula, where to find the dividend in an annual report, the usual range, comparison with its average and the trap of a yield that is too high.
- Earnings consistency: 10 years without a loss
Why check for positive earnings every year over 10 years, where to find net income in annual reports, what the criterion says and does not say, its traps and the sectors excluded.
- EPS growth: measuring the rise in earnings per share
How to calculate the average annual growth of earnings or FCF per share, where to find EPS in an annual report, usual thresholds by profile, and the traps worth knowing.
- EV to EBIT: enterprise value against operating profit
Definition of the enterprise value to EBIT ratio, its formula, where to find its parts in an annual report, usual thresholds, how it differs from the P/E, and the traps to know.
- FCF conversion: when earnings turn into cash
Definition of FCF conversion (FCF / net income), its formula, where to find its parts in an annual report, usual thresholds, traps and the sectors where it misleads.
- FCF payout ratio: is the dividend covered by cash flow?
Definition of the FCF payout ratio (dividends / free cash flow), its formula, where to find its parts in an annual report, usual thresholds, traps and the sectors it does not suit.
- FCF yield: free cash flow measured against the share price
Definition of the FCF yield (free cash flow yield), its formula, where to find FCF in an annual report, usual thresholds by profile, traps of unusual years and sectors excluded.
- Financial strength score: the 9 tests of the Piotroski F-score
The Piotroski F-score in 9 tests: profitability, leverage, liquidity, efficiency. How to calculate it from two annual reports, usual thresholds, traps and the sectors excluded.
- Gross margin: what is left after the cost of sales
Definition of gross margin, its formula, where to find it in an annual report, usual levels by sector, the traps of reading it and the limits of the indicator for investors.
- Margin of safety: the gap between your fair value and the price
Definition of the margin of safety, its formula, how to estimate a fair value (DCF, multiples), usual thresholds, sensitivity to assumptions and the traps of the exercise.
- Net cash: when cash exceeds debt
Definition of net cash, its formula, where to find cash and debt in an annual report, its link with FCF, the traps of cash that is not freely available and the sectors excluded.
- Net debt to EBITDA: measuring the weight of debt
Definition of the net debt to EBITDA ratio, its formula, where to find debt and EBITDA in an annual report, usual thresholds by profile, the effect of IFRS 16 and traps.
- Operating margin: how profitable the business really is
Definition of operating margin, its formula, where to find operating profit in an annual report, usual levels by sector and by profile, and the traps of reading it.
- P/E × price to book: the Graham product
What the product of the P/E and price to book measures, where the 22.5 threshold comes from, how to calculate it from an annual report, its traps and the sectors it does not suit.
- P/E ratio: the share price against earnings per share
Definition of the P/E ratio (price to earnings), its formula, where to find earnings per share in an annual report, usual levels by profile, and the traps of one-off earnings.
- Payout ratio: the share of earnings paid out as dividends
Definition of the payout ratio, its formula, where to find dividend and earnings per share in an annual report, usual thresholds by sector, and the traps worth knowing.
- PEG ratio: the P/E measured against earnings growth
Definition of the PEG ratio, its formula, how to choose the growth rate to use from an annual report, usual thresholds, the limits of the ratio and the sectors it does not suit.
- Price to book: comparing the share price with book value
Definition of the price to book ratio, its formula, where to find equity in an annual report, usual thresholds by profile, and the traps of intangible assets left off the books.
- Price to FCF: valuation against free cash flow
Definition of the price to FCF ratio, its formula, where to find FCF in an annual report, how to compare it with its historical average, usual thresholds, traps and sectors.
- Revenue growth and CAGR: how to calculate it without mistakes
How to calculate the compound annual growth rate (CAGR) of revenue, where to find the figures in an annual report, usual thresholds by profile, organic growth and traps.
- ROIC: return on invested capital
What ROIC measures, how to calculate it from an annual report, the usual thresholds by investor profile, the traps worth knowing and the sectors where it does not apply.
- Rule of 40: growth and FCF margin for software companies
What the rule of 40 measures (revenue growth plus FCF margin), how to calculate it from an annual report, its thresholds, its traps and the sectors where it does not apply.
- Share count: dilution and share buybacks
How to track the change in share count, measure dilution and the effect of share buybacks, where to find these figures in an annual report, usual thresholds and traps.
- Value trap: when a low share price stays low
What a value trap is, the warning signs to spot in an annual report, the role of a catalyst, the reasoning traps to avoid and the sectors most exposed to this risk.