TXN

Adjusts the numerator for debt and cash so heavily-levered or cash-rich companies become comparable on a revenue-multiple basis. Particularly useful for cross-industry valuation work where some firms run net cash and others carry meaningful debt loads. Same caveats as P/S: best read alongside gross margin to translate the multiple into expected steady-state earnings power.

An ABSOLUTE intrinsic-value signal, distinct from the relative multiples (PE, EV/EBITDA) which only compare a stock to its industry peers. Intrinsic value comes from the Residual Income Model: book value plus the present value of the residual income (earnings above a charge for the cost of equity) the firm is forecast to generate. This is the best-VALIDATED absolute value signal in the academic literature (Frankel & Lee 1998, replicated through 2026): the value-to-price ratio robustly predicts 1-3 year cross-sectional returns, survives every major factor model, and subsumes book-to-market. Because it is scored across the WHOLE universe (not within-industry), it complements the relative multiples rather than double-counting them. Pair it with a quality screen (Piotroski) to avoid value traps, and read the EPV decomposition to see whether a discount is unpriced earnings power or just speculative growth coming out of the price. One caveat: the model anchors on book equity, so for low-book, buyback-heavy, or asset-light firms (think Apple or Coca-Cola) book is a poor floor and the model can read durable franchises as wildly overvalued. Readings are clamped, and the metric is currently shadow-scored — shown for context, with zero weight in the fundamentals grade — pending validation.

Share price divided by per-share book value of common equity — what the market values the franchise at versus what the accountants say it's worth on paper. Most informative for asset-heavy businesses (banks, insurers, industrials) where book value approximates a liquidation floor; far less informative for asset-light franchises whose value sits in brand, software, or other intangibles that GAAP under-states or excludes entirely.

Useful when earnings are negative, noisy, or one-time-distorted (early-stage growth, restructurings, cyclical troughs). Works best within an industry, not across — gross margin profiles vary so wildly that 1x P/S for a software company means something completely different from 1x P/S for a grocery chain.

Divides the trailing P/E by the year-over-year EPS growth rate (in percentage points). Below 1.0 is conventionally read as 'cheap relative to growth'; above 2 implies the multiple is well ahead of recent growth. Sensitive to which growth window you choose and unstable when earnings cross zero — flips sign or explodes when prior EPS is negative.

Peter Lynch's adjustment to PEG: adds the dividend yield to the growth rate in the denominator so that mature dividend payers don't get unfairly punished by a low growth rate alone. Sweet spot is 1.0 (P/E equals growth plus yield); below 0.5 often signals a broken growth assumption rather than genuine value; above 2 is over-paying.

Lower is generally better for shareholder cash returns — less of every dollar of revenue gets reinvested in maintaining the asset base. But very low values can flag under-investment in a capital-intensive business, which catches up later via deteriorating capacity or competitiveness. Pairs with FCF margin to separate 'thin operating margin' from 'fat operating margin offset by heavy capex'.

Sanity-check on earnings quality — a ratio of 1.0 means every dollar of GAAP earnings shows up as free cash flow. Persistently below 1.0 means working-capital build or capex is consuming earnings; persistently above 1.0 is unusual and may flag accounting conservatism (heavy non-cash charges) or a one-time release. Trend matters more than absolute level.

Free cash flow the business throws off, divided by what the market currently charges for the equity. Treats the equity claim as a perpetual stream of free cash. More honest than earnings yield because it reflects the cash actually available to shareholders after all reinvestment. Cyclicals can swing below zero in a downturn — read with the trailing-cycle range.

First-line profitability measure — how much revenue is left after the direct cost of producing it. Stable or rising gross margin signals pricing power and low input-cost exposure; falling gross margin is one of the earliest reliable signals of competitive pressure or commodity-input squeeze. Industry context is everything: 30% gross margin is excellent for a grocery chain and disastrous for a software company.

Operating margin minus interest, tax, and below-the-line items. Useful but noisier than operating margin: tax rate changes, debt-service shifts, and one-time items can move net margin year-over-year even when the operating business is unchanged. Always pair with operating margin and FCF margin — divergence between them is a tell about leverage, tax structure, or earnings quality.

Pre-capex version of cash conversion: compares operating cash flow directly to net income, before subtracting capex. Numbers persistently below 1.0 suggest accruals are doing the work (revenue recognised before cash collected, or expenses deferred). Numbers above 1.0 are typically driven by D&A exceeding true economic depreciation — a mild positive sign but not always meaningful.

The headline profitability metric. Net income divided by average book equity tells you how productive each dollar of shareholders' capital is. High sustained ROE compounds book value when the business can reinvest at a similar return. Two warnings: ROE rises mechanically with leverage (high D/E inflates ROE without making the business better), and aggressive buybacks can shrink the equity denominator faster than they shrink earnings, artificially boosting ROE even as fundamental returns are flat.

Measures how productive the actual operating capital base is, independent of capital structure. Strips out the effects of cash, leverage, and below-the-line items so you see the underlying economic engine. The benchmark is the firm's weighted-average cost of capital (WACC) — sustained ROIC above WACC creates value, sustained ROIC below WACC destroys it. The single most important profitability metric for long-term compounding.

Bottom-line growth on a per-share basis — captures both operating progress and any net buyback effect. The denominator uses the absolute value of prior EPS so a turnaround from negative to positive earnings reads with the conventional sign rather than producing arithmetic nonsense. Pair with revenue growth to separate real franchise expansion from buyback-driven per-share lift.

The single best operations-quality metric. Negative CCC means the firm is funded by suppliers — the customer pays before the supplier needs to be paid (Apple, Costco, Amazon at scale). Long CCC ties up working capital and forces operating-loan dependence. Combines three sub-metrics: days inventory outstanding, days sales outstanding, days payable outstanding.

DuPont productivity measure. Combined with margin, it tells the asset-light vs. asset-heavy story: low turnover with high margin is the luxury / branded model, high turnover with thin margin is the supermarket / discount model. Very high turnover in retail can also flag stockouts (lost sales) — the metric reads best industry-relative, not absolute.

Net income divided by market cap, expressed as a percent. Lets you compare equity earning power directly to bond yields: a 6% earnings yield is the equity-side analog to a 6% coupon, with the difference that earnings can grow (or contract) while a bond coupon is fixed. The standard 'is the equity risk-premium adequate?' framing.

Sustainability check on the dividend yield. Below 30% means the dividend has substantial room to grow; 30–60% is the conventional sweet spot for a mature payer; above 85% is stretched and frequently precedes a cut. REITs and utilities run higher than the broad market by design — REIT payouts above 80% are normal because the structure requires distributing most income.