Understanding the Financials
The Investment terminology of a company you need to understand before investing in it.
The Financials of a Stock
Valuation
Explanation: Valuation is the process of determining the current worth of a company. It is often done by analyzing various financial metrics and market indicators to estimate the company’s intrinsic value.
Significance: Valuation helps investors assess whether a stock is overvalued, undervalued, or priced fairly, aiding in investment decision-making.
Market Capitalization:
Explanation: Market Cap is the total market value of a company’s outstanding shares of stock. It is calculated by multiplying the current stock price by the total number of outstanding shares.
Significance: Market Cap gives an indication of a company’s size in the market and is used to categorize stocks as large-cap, mid-cap, or small-cap.
Enterprise Value (MRQ):
Explanation: Enterprise Value is the total value of a company, including its market capitalization and net debt. It provides a more comprehensive picture of a company’s value than market cap alone.
Significance: Enterprise Value is useful for assessing the true cost of acquiring a company and comparing the relative value of different companies.
Enterprise Value/EBITDA (TTM):
Explanation: This ratio compares a company’s enterprise value to its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) over the trailing twelve months (TTM).
Significance: It is a valuation metric that helps investors evaluate a company’s overall financial performance, factoring in debt and operating profitability.
Total Shares Outstanding:
Explanation: Total Shares Outstanding represents the total number of a company’s shares held by investors.
Significance: It is crucial for calculating market capitalization and understanding the ownership structure of a company.
Number of Employees:
Explanation: The total count of individuals employed by a company.
Significance: Employee count can provide insights into the scale and operational capacity of a company.
Number of Shareholders:
Explanation: The total count of individuals or entities holding shares in the company.
Significance: A higher number of shareholders may indicate broader market participation and interest in the company.
Price to Earnings Ratio (TTM):
Explanation: P/E ratio measures the current stock price relative to its earnings per share (EPS) over the trailing twelve months (TTM).
Significance: It is a widely used valuation metric, helping investors gauge whether a stock is overvalued or undervalued based on its earnings.
Price to Revenue Ratio (TTM):
Explanation: P/S ratio compares the stock price to the company’s revenue per share over the trailing twelve months (TTM).
Significance: It provides insights into how the market values a company’s revenue generation.
Price to Book (FY):
Explanation: P/B ratio compares a company’s market price to its book value (total assets minus total liabilities) per share.
Significance: It helps investors assess whether a stock is trading at a premium or discount to its book value.
Price to Sales (FY):
Explanation: P/S ratio compares the stock price to the company’s sales per share over the fiscal year (FY).
Significance: Similar to P/E and P/B ratios, P/S ratio provides insights into the market’s perception of a company’s financial health.
Balance Sheet
Quick Ratio (MRQ):
Explanation: Quick Ratio, also known as the Acid-Test Ratio, measures a company’s ability to cover its short-term liabilities with its most liquid assets (excluding inventory).
Significance: It provides insight into a company’s short-term liquidity and its capacity to meet immediate financial obligations.
Current Ratio (MRQ):
Explanation: Current Ratio compares a company’s current assets to its current liabilities.
Significance: It indicates the company’s ability to cover its short-term obligations with its short-term assets.
Debt to Equity Ratio (MRQ):
Explanation: Debt to Equity Ratio measures the proportion of a company’s financing that comes from debt compared to equity.
Significance: It assesses the financial leverage and risk associated with a company, indicating how much of the operations are funded by debt.
Net Debt (MRQ):
Explanation: Net Debt is the difference between a company’s total debt and its cash and cash equivalents.
Significance: It provides a clearer picture of a company’s debt burden, factoring in its available cash.
Total Debt (MRQ):
Explanation: Total Debt represents the sum of a company’s short-term and long-term debt.
Significance: It gives a comprehensive view of a company’s overall debt obligations.
Total Assets (MRQ):
Explanation: Total Assets represent the sum of a company’s current and non-current assets.
Significance: It reflects the total value of resources owned by the company, providing a snapshot of its financial health.
Operating Metrics:
Return on Assets (TTM):
Explanation: Return on Assets (ROA) measures a company’s ability to generate profits from its assets.
Significance: It indicates the efficiency of asset utilization in generating earnings.
Return on Equity (TTM):
Explanation: Return on Equity (ROE) evaluates the profitability of a company in relation to its equity.
Significance: It measures how well a company is using its shareholders’ equity to generate returns.
Return on Invested Capital (TTM):
Explanation: Return on Invested Capital (ROIC) assesses a company’s ability to generate returns from its total invested capital, including both equity and debt.
Significance: It provides insight into the efficiency of capital utilization in generating profits.
Revenue per Employee (FY):
Explanation: Revenue per Employee measures a company’s revenue generated per employee.
Significance: It gauges the productivity and efficiency of a company’s workforce in generating revenue.
Price History
Average Volume (10 day):
Explanation: Average Volume (10 day) represents the average number of shares traded per day over the last 10 days.
Significance: It provides insights into the recent trading activity and liquidity of a stock. Higher average volume often indicates increased market interest or volatility.
1-Year Beta:
Explanation: Beta measures a stock’s volatility in relation to the overall market. A beta above 1 indicates higher volatility than the market, while a beta below 1 suggests lower volatility.
Significance: Investors use beta to assess a stock’s risk compared to the market. A beta greater than 1 implies higher risk, while a beta less than 1 suggests lower risk.
52 Week High:
Explanation: 52 Week High represents the highest price at which a stock has traded over the past 52 weeks.
Significance: It gives an indication of a stock’s recent peak performance and can be used to assess its current valuation.
52 Week Low:
Explanation: 52 Week Low represents the lowest price at which a stock has traded over the past 52 weeks.
Significance: It provides insights into a stock’s recent bottom performance, helping investors gauge its historical price range.
Dividends
Dividends Paid (FY):
Explanation: Dividends Paid (FY) represents the total amount of dividends distributed by a company during its fiscal year.
Significance: It shows the cash returned to shareholders in the form of dividends, reflecting the company’s dividend distribution policy.
Dividend Yield Forward:
Explanation: Dividend Yield Forward is the expected annual dividend income expressed as a percentage of the current stock price.
Significance: It helps investors assess the income they can potentially earn from holding the stock based on expected future dividends.
Dividends per Share (FY):
Explanation: Dividends per Share (FY) is the total dividends paid divided by the number of outstanding shares, indicating the dividend amount per share.
Significance: It helps investors understand the dividend distribution on a per-share basis, facilitating comparison across different stocks.
Margins
Net Margin (TTM):
Explanation: Net Margin (TTM) represents the percentage of revenue that translates into net profit after all expenses.
Significance: It indicates the company’s efficiency in converting revenue into profit, considering all costs.
Gross Margin (TTM):
Explanation: Gross Margin (TTM) is the percentage of revenue remaining after deducting the cost of goods sold (COGS).
Significance: It reveals how well a company manages its production costs and is a key indicator of profitability.
Operating Margin (TTM):
Explanation: Operating Margin (TTM) measures the percentage of revenue that remains after covering operating expenses.
Significance: It reflects the efficiency of a company’s core operations in generating profit.
Pretax Margin (TTM):
Explanation: Pretax Margin (TTM) represents the percentage of revenue that remains after deducting all operating expenses and interest but before taxes.
Significance: It provides insights into a company’s profitability before the impact of income taxes.
Income Statement:
Basic EPS (FY):
Explanation: Basic Earnings Per Share (EPS) for the fiscal year (FY) is the net income attributable to common shareholders divided by the weighted average number of shares outstanding.
Significance: It indicates the company’s profitability on a per-share basis.
Basic EPS (TTM):
Explanation: Basic Earnings Per Share (EPS) for the trailing twelve months (TTM) is similar to FY EPS but covers the most recent 12-month period.
Significance: It provides a more recent and dynamic view of the company’s earnings per share.
EPS Diluted (FY):
Explanation: Diluted Earnings Per Share (EPS) for the fiscal year (FY) considers potential dilution from stock options and convertible securities.
Significance: It reflects the impact of potential dilution on earnings per share.
Net Income (FY):
Explanation: Net Income for the fiscal year (FY) is the company’s total profit after all expenses, taxes, and interest.
Significance: It represents the bottom line of the income statement, indicating overall profitability.
EBITDA (TTM):
Explanation: Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for the trailing twelve months (TTM) measures operating performance without accounting for interest, taxes, and non-cash expenses.
Significance: It provides a measure of a company’s operational profitability and cash flow.
Gross Profit (MRQ):
Explanation: Gross Profit for the most recent quarter (MRQ) is the revenue remaining after deducting the cost of goods sold (COGS).
Significance: It gives a snapshot of the profitability from core business operations.
Gross Profit (FY):
Explanation: Gross Profit for the fiscal year (FY) is the total revenue minus the cost of goods sold (COGS).
Significance: It reflects the overall profitability from the sale of goods or services.
Last Year Revenue (FY):
Explanation: Last Year Revenue represents the total revenue generated by the company in the last fiscal year.
Significance: It provides a reference point for assessing the company’s current revenue performance.
Total Revenue (FY):
Explanation: Total Revenue for the fiscal year (FY) is the sum of all sources of income for the company.
Significance: It represents the top line of the income statement, indicating the total income generated.
Free Cash Flow (TTM):
Explanation: Free Cash Flow for the trailing twelve months (TTM) is the cash generated by the company’s operations after deducting capital expenditures.
Significance: It measures the cash available for dividends, debt repayment, and investments.
Abbreviations
(FY):
Explanation: (FY) stands for Fiscal Year. A fiscal year is a 12-month period that a company uses for financial reporting, not necessarily coinciding with the calendar year. It helps businesses align their financial reporting with their operational cycles.
(TTM):
Explanation: (TTM) stands for Trailing Twelve Months. It represents the most recent 12-month period ending on the last day of any given month. TTM is often used to assess a company’s performance over the most recent and continuous year.
(MRQ):
Explanation: (MRQ) stands for Most Recent Quarter. It refers to the financial data for the latest quarter, providing a snapshot of a company’s recent performance within the last three months.
EBITDA (TTM):
Explanation: EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA (TTM) refers to the trailing twelve months’ total EBITDA, which is a measure of a company’s operating performance, excluding certain non-operational expenses.
EBITDA (TTM):
Explanation: EPS stands for Earnings Per Share. It represents the portion of a company’s profit allocated to each outstanding share of common stock. EPS is a key indicator of a company’s profitability on a per-share basis.
P/E Ratio:
Explanation: P/E Ratio stands for Price to Earnings Ratio. It compares a company’s current stock price to its earnings per share (EPS). The ratio helps investors assess the valuation of a stock by indicating how much investors are willing to pay for each dollar of earnings.
P/B Ratio:
Explanation: P/B Ratio stands for Price to Book Ratio. It compares a company’s current market price to its book value per share. The book value is the net asset value of the company, representing total assets minus total liabilities. P/B Ratio helps assess whether a stock is overvalued or undervalued.
P/S Ratio:
Explanation: P/S Ratio stands for Price to Sales Ratio. It compares a company’s stock price to its revenue per share. The ratio is useful for evaluating a company’s valuation relative to its revenue-generating capacity, providing insights into market expectations for sales growth.
Understanding these abbreviations is crucial for interpreting financial metrics and ratios effectively. They offer a standardized way to express and compare financial information across different companies and industries. If you have any more questions or need further clarification, feel free to ask!
Start Trading with our recommended ECN Brokers
Choosing the correct broker for trading is critical to your trading journey, there are many factors you should take into consideration specifically for ECN trading before settling with the broker you may be trading with or when switching to a new choice broker which is best suited to your needs and factors which are important to you personally.
Get the list of the best Low Spread Forex Brokers to trade Forex, Stocks, Indices, and Commodities – Instant ECN Execution With ECN Brokers
Broker | Regulators | Max. Leverage | Spreads | Trading Acc. | Instruments | Connect |
FP Markets | ASIC, CySEC | Up to 1:500* | From 0.0 pips | Broker Type: | Forex, Indices, | |
Eightcap | ASIC, VFSC | Up to 1:500 | From 0.0 pips | Broker Type: | Forex, Indices, | |
IC Markets | AFSL, ASIC, CySEC, FSA | Up to 1:500 | From 0 pips | Broker Type: | Forex, Indices, | |
Axi | ASIC, FCA, DFSA, FSC | Up to 1:500 | From 0 - 0.4 pips | Broker Type: | Forex, Indices, | |
InstaForex | BVI FSC | Up to 1:1000 | From 0 pips | Broker Type: | Forex, Indices, | |
NordFX | VFSC | Up to 1:1000 | Floating spread from 0.9 pips | Broker Type: | Forex, Indices, | |
FXOpen | ASIC, FCA | Up to 1:500* | Floating spread from 0 pips | Broker Type: | Forex, Indices, Metals, Energies, Shares, Crypto | |
Vantagemarkets | CIMA, ASIC, FCA | Up to 1:500* | From 0.4 pips | Broker Type: | Forex, Indices, Metals, Energies, Shares, Crypto | |
RoboForex | FSC | Up to 1:2000 | From 0.0 pips | Broker Type: | Forex, Indices, | |
Fxview | CySEC, FSCA and FSC | Up to 1:500 | From 0.0 pips | Broker Type: | Forex, Indices, | |
FBS | CySEC, FSC, FSCA, ASIC | Up to 1:3000 | From 1 pip | Broker Type: | Forex, Indices, | |
Blackbull | FMA, FSA | Up to 1:500 | From 0.0 pips | Broker Type: 6 Accounts | Forex, Indices, | |
Blueberry Markets | ASIC, SCB | Up to 1:500 | From 0.0 pips | Broker Type: | Forex, Indices, | |
VALUTRADES | FCA, VFSC | Up to 1:500 | From 0.0 pips | Broker Type: | Forex, Indices, | |
FXGT | SFSA, FSCA, CySec* | Up to 1:500 | From 0.0 pips | Broker Type: 6 Accounts | Forex, Indices, | |
Broker Type: | ||||||
Exness | FCA, CySEC, FSA, CBCS, FSC, FSCA | Up to 1:3000 | From 0.4 pip | Broker Type: | Forex, Indices, |
Cory has been a professional trader since 2005, and holds a Chartered Market Technician (CMT) designation. He has been widely published, writing for Technical Analysis of Stock & Commodities magazine, Investopedia, Forbes, Benzinga, and others.