Welcome Miami Northwestern Bulls! Florida International University State Farm Financial Literacy Lab
BASIC RATIOS AND METRICS Benchmarking Market Capitalization ROA ROE ROIC P/E P/B Debt to Equity
Benchmarking vs.
MARKET CAPITALIZATION “market cap” is used in determining a company's size, as opposed to sales or total asset figures* Categorization of by capitalization * Mega-cap: Over $200 billion Large-cap: Over $5 billion Mid-cap: $1 billion–$5 billion Small-cap: $250 million–$1 billion Micro-cap: Below $250 million Nano-cap: Below $50 million
MARKET CAPITALIZATION 101 AT&T(T)Verizon Wireless(VZ) Market Price Per Share = $29.78 Market Cap = 176.5B $29.78 × = $5,257.9B Market Price Per Share = $37.65 Market Cap = 106.6B $37.65 × = $ 4,004.9B VS
RETURN ON ASSETS (ROA) It tells me It is a percentage that tells you how much profit a company is squeezing from using it,,, and other assets.
RETURN ON ASSETS (ROA) 101 Big Tuna Restaurant Stackhouse Pancakes Restaurant Profit = $1M,, & other assets = $10M $ 1M ÷ $10M =10% Profit = $1M,, & other assets = $5M $ 1M ÷ $5M =20% VS
RETURN ON EQUITY (ROE) It tells me Is a percentage of how much profit a company generates with the money shareholders have invested.
RETURN ON EQUITY (ROE) 101 Big Tuna Restaurant Stackhouse Pancakes Restaurant Profit = $1M Investor’s money/equity = $10M $ 1M ÷ $10M =10% Profit = $1M Investor’s money/equity = $5M $ 1M ÷ $5M =20% VS
RETURN ON INVESTED CAPITAL (ROIC) It tells me Is a percentage of how much profit a company generates with the money used to invest in new projects such as buildings, projects, machinery, other companies etc.
RETURN ON INVESTED CAPITAL (ROIC) 101 Big Tuna Restaurant Stackhouse Pancakes Restaurant Purchased a new building to branch out and create “Stackhouse Pancakes 2” = $20M Profit= $10M $ 10M ÷ $20M =50% Purchased new machinery to add deserts to the menu cost $10M Profit = $1M $ 1M ÷ $10M =10% VS
PRICE TO EARNINGS (P/E) It tells me The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings.* *Read more:
PRICE TO EARNINGS (P/E) 101 Big Tuna Restaurant Stackhouse Pancakes Restaurant Trading at a market price of $20 Earning per Share = $5 $ 20 ÷ $5=4 Trading at a market price of $15 Earning per Share = $5 $ 15 ÷ $5=3 VS
PRICE TO BOOK (P/B) It tells me This ratio also gives some idea of whether you're paying too much for what would be left if the company went bankrupt immediately.* *Read more:
PRICE TO BOOK (P/B) 101 Big Tuna Restaurant Stackhouse Pancakes Restaurant All Assets = $20M Intangibles(Patents and/or Book value) = $5M Liabilities(Debt) = $3 $ 20 – ($5 +$3)=12 All Assets = $10M Intangibles(Patents and/or Book value) = $5M Liabilities(Debt) = $3 $ 10 – ($5 +$3)=2 VS
DEBT TO EQUITY It tells me Is an indicator to see if a company has been aggressive in financing its growth with debt Read more:
DEBT TO EQUITY101 Big Tuna Restaurant Stackhouse Pancakes Restaurant Debt = $20 Stockholder’s Equity = $5 $ 20 ÷ $5=4 Debt = 15M Stockholder’s Equity= $5 $ 15 ÷ $5=3 VS