Overview
All companies on the stock market are required to provide information on their company to the public. They are required to provide financial statements (income statement, balance sheet, statement of cash flows). See previous post for information on those statements. In addition, various financial ratios are provided. Below, I’ll explain some of the most common ones.
Price/Earnings Ratio
This ratio is the price per share divided by the earnings per share. The earnings number is usually the earnings over the previous 12 months. Earnings are sales (value of everything sold) – cost of goods sold (how much it cost you produce the goods sold) – any other expenses. It reveals how much value is placed on each dollar of earnings.
Price/Book Ratio
This ratio is the price per share divided by the book value per share. Book value is equal to shareholder’s equity (what you own that isn’t beholden to debt). For example say your house is worth $200,000. You still owe $100,000 on your loan. Your equity is thus $100,000. It reveal how much value is placed on each dollar of book value.
Price/Sales Ratio
This ratio is the price per share divided by the sales per share. The sales number is usually the sales over the previous 12 months. Sales is the value of everything sold. It reveal how much value is placed on each dollar of sales.
Price/Cash Flow Ratio
This ratio is the price per share divided by the cash flow per share. Cash flow is usually how much cash flowed into the company over the course of the last 12 months. It reveal how much value is placed on each dollar of cash flow.
Return on Equity Ratio
This ratio is earnings per share divided by the shareholders equity per share. It reveals how efficiently the company uses what they have to generate profit.
Dividend Yield (%)
Another piece of information (that is not a ratio) is dividend yield, which is a percentage. It is how much company paid out in dividends per share over the last year divided by the price per share. That number is then multiplied by 100. The percentage reveals how big the dividend is relative to the price.
Fee Structure
| Rate | Assets Under Management |
| 1.44% | Below $125,000 |
| 1.00% | Between $125,000 and $750,000 |
| .85% | Between $750,000 and $1,250,000 |
| .80% | Between $1,250,000 and $1,750,000 |
| .75% | Between $1,750,000 and $2,500,000 |
| .70% | Between $2,500,000 and $3,250,000 |
| .65% | Between $3,250,000 and $4,250,000 |
| .60% | Above $4,250,000 |
A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.
As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. If you would like to submit a post to my blog, please contact me.
If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.
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Questions for the comments
Did my explanation make sense? Do you agree or disagree with what I said?
