Thursday, May 26, 2011
Memorial Day
Hopefully we will all take a minute or two to pause during this coming weekend and give thanks, each in our own way, to all those who have gone before us. But for many of them, we would not enjoy the freedoms we have today. We take our blessings for granted. And God bless those who still serve in our military putting themselves at risk of death each day.
Thursday, May 19, 2011
Final Test
The fourth and final fundamental test every stock investor should use is the Debt Ratio Trend.
The debt ratio (long-term debt divided by total capital, which is combined long-term debt and stockholder's equity) can be overlooked, but it is the most important test of working capital.
The current ratio (current assets divided by current liabilities) can be misleading, especially if the company has allowed its long-term debt to grow in order to bolster cash, accounts receivable and inventory to keep the current test steady. A growing long-term debt is a big problem, because it translates to ever-higher interest and debt service in the future, and that means less capital remains for expansion or dividends. You want to see a steady or declining debt ratio from year to year, not growing levels.
The debt ratio (long-term debt divided by total capital, which is combined long-term debt and stockholder's equity) can be overlooked, but it is the most important test of working capital.
The current ratio (current assets divided by current liabilities) can be misleading, especially if the company has allowed its long-term debt to grow in order to bolster cash, accounts receivable and inventory to keep the current test steady. A growing long-term debt is a big problem, because it translates to ever-higher interest and debt service in the future, and that means less capital remains for expansion or dividends. You want to see a steady or declining debt ratio from year to year, not growing levels.
Monday, May 16, 2011
Maps
Each year I offer readers of my blog the opportunity to get a copy of maps of Dane County Day Trips. If interested, send me an e-mail at rgorsuch@oakbankonline.com.
Wednesday, May 11, 2011
Another Test
A third fundamental test every stock investor should use is Dividends per Share. You will prefer to invest in companies whose dividend is growing each year. The dividend is easily overlooked, but it represents a major factor in your overall return from investing in stock. Reinvesting dividends increases dividend yield.
The best managed companies increase dividends each year, which is also a reflection of growing profits and well-managed working capital.
The best managed companies increase dividends each year, which is also a reflection of growing profits and well-managed working capital.
Tuesday, May 03, 2011
Fundamental Test #2
Here is the second fundamental test to apply when buying a stock for your investment portfolio.
Price-Earnings Ratio (P/E):
The price-earnings ratio is calculated by simply dividing the price by earnings per share. The multiple represents how many years of per share net earnings are reflected in the current stock price. A P/E ratio that is too high means the stock is probably overpriced; a P/E ratio that is too low indicates lack of interest in the company. As a general rule, the desirable middle ground is between 10 and 25.
Price-Earnings Ratio (P/E):
The price-earnings ratio is calculated by simply dividing the price by earnings per share. The multiple represents how many years of per share net earnings are reflected in the current stock price. A P/E ratio that is too high means the stock is probably overpriced; a P/E ratio that is too low indicates lack of interest in the company. As a general rule, the desirable middle ground is between 10 and 25.
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