Educational articles

Important Financial Ratios

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Each Tuesday we produce a research document called “The Dynamic Investor” where we analyse various stocks fundamentally as well as technically. Each stock which is covered also has 5 fundamental metrics. Whilst there are many other important metrics that investors need to understand, these 5 are a good starting point. In this article we explain what each metric means and why they are important when analysing stocks. Market Cap A market cap (“market capitalisation” in full) of a stock is …

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What you need to know about shorted stocks

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The shorted stock is a term which is used frequently in the share market. In this article we explain what this term means and why this strategy is used. What is short selling? A short selling strategy involves selling a stock to profit from a fall in the share price. The way traders do this is they borrow the stock they want to short sell, then they sell this stock in the market. Eventually they return the borrowed stock to …

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How do you know a stock is expensive? Part 3

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Company’s enterprise value to earnings before interest, taxes, depreciation, and amortization. In addition to the P/E ratio and PEG ratio, investors can also use enterprise value to EBITDA to evaluate whether a company is expensive or not. Enterprise value can be defined as the cost of the company to another investor who would want to buy it. In our previous analysis in determining whether a company is expensive or not, those ratios did not take into account debt but the …

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How do you know a stock is expensive? Part 2

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Last week we wrote an article about how to determine whether a stock is expensive or not and used the price to earnings (P/E) ratio to explain this. There are, however, issues with this simplistic ratio. This is because it does not take into account the earnings growth as it only looks at historical earnings which may change.  The price earnings ratio also does not take into account the debt the company has. The next step above the P/E ratio …

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How do you know a stock is expensive? Part 1

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Often in the financial media, a talking head or analyst will dismiss a stock as being “too expensive”. Yet often these expensive stocks are the ones that produce the best returns over time. So what does it actually mean when someone states that a stock is too expensive? The P/E ratio One of the methods investors use to evaluate a stock price is to calculate its price to earnings (P/E) ratio. This ratio compares the stock price against its per-share …

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