Cash Flow Growth
Cash flow growth is a crucial indicator of a company’s financial health and its ability to generate cash over time. This metric is essential for assessing the company’s ability to fund its operations, pay dividends, reduce debt, and invest in growth opportunities. Analyzing cash flow growth involves looking at operating cash flow and/or free cash flow, as these two components provide a comprehensive view of the company’s cash generation capabilities.
Comparison
Operating Cash Flow, also known as cash flow from operations, represents the cash generated by a company’s core business activities. This includes cash received from customers and cash paid to suppliers and employees. It is calculated by adjusting net income for non-cash items and changes in working capital.
OCF is a critical measure of a company's ability to maintain and expand its operations without relying on external financing. A strong OCF indicates a company’s capability to generate sufficient cash to sustain its business and handle operational expenses.
Free Cash Flow is the cash remaining after a company has met its capital expenditures (CapEx) necessary to maintain or expand its asset base. It is calculated by subtracting capital expenditures from the operating cash flow.
FCF is a vital indicator of a company's financial flexibility and its ability to pursue opportunities that enhance shareholder value, such as paying dividends, reducing debt, or investing in new projects. Unlike operating cash flow, FCF accounts for the outflows needed to sustain the company’s productive capacity, offering a clearer picture of the cash available for discretionary spending. Because Free cash flow growth accounts both for all cash items, free cash flow growth can be used to valuate a company based on expected future cash generated and made available to growth or ownership dividend.
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Debt Coverage
Debt Coverage, often referred to as the Debt Coverage Ratio (DCR) or Debt Service Coverage Ratio (DSCR), is a financial metric that measures a company's ability to service its debt obligations with its operating income. It is calculated by dividing the company's net operating income (NOI) by its total debt service (the sum of all interest and principal payments due within a given period). This ratio indicates how comfortably a company can cover its debt payments with its operational earnings.
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Debt to Equity Ratio
The Debt to Equity Ratio is a financial metric that measures the relative proportion of a company's debt and shareholders' equity used to finance its assets. It is calculated by dividing the company's total liabilities by its total shareholders' equity. This ratio indicates how much debt is being used to fund the business compared to equity, providing insights into the company's financial leverage and risk profile.
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Earnings Growth
Earnings Growth refers to the annual rate at which a company's net income or earnings per share (EPS) increases over time. It is a key indicator of a company's profitability and its ability to generate increasing profits. Earnings Growth is typically measured on a year-over-year basis but can also be evaluated over different time horizons, such as quarterly or multi-year periods. It is a fundamental financial metric that provides crucial insights into a company's profitability, growth potential, and overall financial health. Consistent and robust earnings growth is a positive indicator of a company's operational efficiency and market competitiveness.
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Interest Coverage Ratio
The Interest Coverage Ratio is a financial metric that measures a company's ability to pay interest on its outstanding debt with its earnings before interest and taxes (EBIT). It is calculated by dividing EBIT by the total interest expenses for the same period. This ratio indicates how comfortably a company can meet its interest obligations from its operational earnings.
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Intrinsic Value
Intrinsic Value is a fundamental analysis concept that refers to the perceived or calculated true value of an asset, investment, or company based on underlying financials, qualitative factors, and future earnings potential. Unlike market value, which is determined by current trading prices, intrinsic value is derived through various valuation methods such as discounted cash flow (DCF) analysis, asset-based valuation, and comparative company analysis.
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Price-to-Book (P/B) Ratio
The Price-to-Book (P/B) Ratio is a financial metric used to compare a company's current market value to its book value. The market value is represented by the company's current share price, while the book value is the net asset value of the company as reported in its financial statements. The P/B ratio is calculated by dividing the market price per share by the book value per share.
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Price-to-Earnings (P/E) Ratio
The Price-to-Earnings (P/E) Ratio is a financial metric that measures a company’s current share price relative to its per-share earnings (EPS). It is calculated by dividing the market price per share by the earnings per share. The P/E ratio is widely used by investors and analysts to determine the relative value of a company’s shares and to assess whether they are overvalued or undervalued compared to their earnings.
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PEG Ratio
The Price/Earnings to Growth (PEG) Ratio is a financial metric that evaluates a company's stock price relative to its earnings growth rate. It is an enhancement of the Price/Earnings (P/E) ratio that incorporates the company's expected earnings growth, providing a more comprehensive valuation metric. The PEG ratio is calculated by dividing the P/E ratio by the annual earnings growth rate.
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Profit Margin Growth
Profit Margin Growth refers to the increase in a company's profit margins over time. Profit margins are calculated by dividing net income by revenue, and they represent the percentage of revenue that translates into profit. There are different types of profit margins, including gross profit margin, operating profit margin, and net profit margin. Profit Margin Growth specifically looks at how these margins improve or deteriorate over specific periods, typically year-over-year or quarter-over-quarter.
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Return on Assets (ROA)
Return on Assets (ROA) is a financial metric that measures the profitability of a company in relation to its total assets. It indicates how efficiently a company is using its assets to generate profit. ROA is calculated by dividing net income by total assets. The resulting percentage shows how much profit a company is generating for each dollar of assets it owns.
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Return on Equity (ROE)
Return on Equity (ROE) is a financial metric that measures the profitability of a company in relation to shareholders' equity. It indicates how effectively a company is using the capital invested by its shareholders to generate profit. ROE is calculated by dividing net income by shareholders' equity. The resulting percentage shows how much profit a company generates with each dollar of shareholders' equity.
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Revenue Growth
Revenue Growth refers to the increase in a company's sales or revenue over a specific period, typically measured on an annual or quarterly basis. This metric is crucial for assessing a company's ability to expand its business operations and increase its market share. Revenue growth is expressed as a percentage and is calculated by comparing the current period's revenue to the revenue from a previous period.
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