The most common financial ratios used in ShareData™ are described here. Model-specific ratios can be found in the model descriptions. See Banking Model, Insurance Model, Property Model and Mining Model for ratios not described below.
Ret on SH Fnd: Return on shareholders’ Funds
(Attributable Income After Extraordinary Items + Outside Shareholders’ Interest / Total Shareholders Interest) * 100 * (12/Number of Months)
The return on share capital and reserves.
Ret on Tot Ass: Return on Total Assets
[(Profit Before Exceptional Items - Net Interest Paid + Income from Associates) / Total Tangible Assets)] * 100 * (12/Number of Months)
Gives an indication of the sustainable return on the revenue generating assets of the company.
Note that calculation of this ratio differs for non-industrial companies. See the Banking Model, Property Model and Mining Model for model-specific formulae definitions this ratio.
Op Pft Mgn: Operating Profit Margin
(Net Operating Income / Turnover) * 100
The return on the operating business of the company – including abnormal items, but excluding extraordinary items, and before interest, tax and investment income. Net Operating Income is Operating Income adjusted for abnormal items.
D:E: Debt:Equity Ratio
(Total Liabilities / Total Shareholders’ Interest)
The degree to which shareholders’ funds cover debt. The ratio of debt to equity tells us the level of 'gearing'. A high debt/equity ratio generally means a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense.
DY: Dividend Yield
(12 months dividends / share price) * 100
The dividend yield expresses dividends paid to ordinary shareholders over the previous year as a percentage of the latest share price (or, sometimes, at a previous point in time). At ProfileData we calculate the DY using a Rolling 12 Month Dividend figure (sometimes called a Trailing 12 Month Dividend), which is stored in the share statistics table. As part of financials, DY shows the yield as at the results date; on a quotes page DY reflects the TTM divs as a percentage of the latest share price.
Since the introduction of DWT the ProfileData DY shows the gross dividend yield before the deduction of withholding tax. Although some private investors would prefer to see the net DY, asset managers and other professionals use the gross DY because most institutional portfolios are exempt from DWT. Also, not all private investors are subject to DWT. A further reason for using gross dividends is that the actual percentage of DWT can vary from one company to another as a result of tax
credits or double-taxation treaties (in the case of dual-listed companies). In short, calculating a net DY would be misleading for certain investors and inaccurate for certain companies.
Note that DY does not represent the future income yield from a share. Directors are not obliged to declare ordinary dividends, and companies are at liberty to reduce dividends if they wish. The correct interpretation of the DY is as follows: "If this company maintains dividends at the same level as the past year then, at the stated share price, this represents the stated yield." The DY must be interpreted on a case-by-case basis. If there is reason to believe a company is doing well and will improve dividends the DY might be conservative compared to the next year. On the other hand, if the last year's dividends include a once-off cash disbursement from the sale of a subsidiary then the yield is likely to fall in future.
IFRS: International Financial Reporting Standard
IFRS is a globally accepted set of accounting rules and standards developed by an independent, not-for-profit organisation called the International Accounting Standards Board (IASB). IFRS-compliant reporting is mandatory for listed companies in most countries and on most major exchanges outside the USA.
Int Cover: Interest cover
PROFIT BEFORE INTEREST AND TAX
(AFTER EXCEPTIONAL ITEMS) / NET INTEREST PAID
The degree to which the company’s operating income can pay the interest bill – important for highly geared companies.
CURRENT ASSETS / CURRENT LIABS
The degree to which the company can pay near term debt within a short space of time. The higher the current ratio the more capable the company is of paying obligations. A ratio under 1 suggests that the company is unable at that point to cover its obligations should they fall due. While this shows the company is not in good financial health, it does not necessarily mean it will go bankrupt as there are many ways to access financing. The ratio does, however, give a good indication of the financial health of the company.
Quick Ratio: (TOTAL CURRENT ASSETS - STOCK) / TOTAL CURRENT LIABILITIES
The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.
Div Cover: Dividend Cover EARNINGS PER SHARE / DIVIDENDS PER SHARE
The degree to which dividends declared are covered by earnings. Gives an idea of the company’s ability to maintain dividend payouts in poor years (a low ratio means dividends might have to be reduced in a poor year). Also gives an indication of the earnings retained to grow the business
Div Cover HEPS: Dividend Cover
HEADLINE EARNINGS PER SHARE / DIVIDENDS PER SHARE
The degree to which dividends declared are covered by headline earnings. As headline earnings are sustainable earnings, this usually gives a better indication of a company’s ability to maintain dividend payouts than Div Cover based on EPS.
P/E Ratio: Price to earnings ratio
SHARE PRICE / HEADLINE EARNINGS PER SHARE
The P/E (or P:E) ratio expresses earnings (profits) attributable to ordinary shareholders over the previous year as a percentage of the latest share price (or, sometimes, at a previous point such as a results date). At ProfileData we calculate the P/E using a rolling 12 month earnings (HEPS) figure, which is stored in the share statistics table. As part of financials, P/E shows the ratio as at the results date; on a quotes page P/E reflects the TTM HEPS as a percentage of the latest share price.
P/E is also referred to as the "earnings multiple" because the ratio shows how many time profits divide into the share price. The P/E reflects a share's "rating". If investors are prepared to pay, say, 30 times last years profits for a share, they "rate" the share highly – they almost certainly believe it has growth potential and will increase profits. A P/E of 5 usually means investors don't believe last year's profits will be sustained – the share is "poorly rated" because investors see trouble ahead and will only pay a low multiple of historical profits.
Sales per Share: Turnover expressed on a per-share basis
TURNOVER / SHARES IN ISSUE
Simply shows how much sales revenue the company generates per ordinary share in issue.
Oper Pft Mgn: Operating Profit Margin
(OP INC / TURNOVER) * 100
Operating Profit Margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production, such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt.
Dr Collect Per: Debtors Collection Period
(DEBTORS / TURNOVER) * 365 * (MONTHS / 12)
The figure measures the number of days on average it has taken the company to collect its debts. The higher the figure the longer it has taken the company to collect its debts.
Int Cover: Interest Cover
PBIT / NetIntPd(Rcvd)
This gives an indication of a company's ability to meet its debt obligations. A low interest cover figure means the company may not be able to service debt if profits fall and/or interest rates rise. Such highly-geared companies are more risky than companies with low gearing (see D:E ratio and Liquidity).
Liquidity: Cash Flow to Total Debt
CASH GENERATED BY OPERATIONS / (TOTAL LONG-TERM DEBT + CURRENT LIABILITIES) * (12/NUMBER OF MONTHS)
The extent to which a company’s cash flow covers total debt. It indicates a company’s ability to service total debt. The higher the ratio the better.
(see also Liquidity as a measure of tradeability in Share Statistics below.)
Cash Flow: Attributable Profit
CASH GENERATED BY OPERATIONS / (RETAINED INCOME + DIVIDENDS – EXTRAORDINARY PROFIT) * (12/NUMBER OF MONTHS)
Measures the quality of the attributable profit. The higher the ratio is above 1, the higher the quality of the attributable profit.
Ret On SH Fnd: Return on Shareholders' Funds.
((ATT INC + MINORITY INT) / TOT SH INT) * 100 * (12 / MONTHS)
Reveals how much profit a company generates with the money shareholders have invested in it. This ratio is sometimes called Return on Equity (RoE).
Ret On Tot Ass: Return on Total Assets
(PROFIT BEFORE EXCEPTIONAL ITEMS – NET INTEREST PAID (RECEIVED) + INCOME FROM ASSOCIATES BEFORE TAX + INCOME FROM ASSOCIATES AFTER TAX) / (TOTAL ASSETS - INTANGIBLE ASSETS - GOODWILL) * 100 * (12 / MONTHS)
Sometimes referred to as ROA, this figure gives investors an idea as to how effectively the company is converting the money they have to invest into net income.
TRI: Total Return Index
TRIndex = prevTRIndex * (ClosingPrice / prevClosingPrice) * (1 + AddUnits) where AddUnits = dividend / price
The Total Return Index (TRI) is used to keep track how a share is performing at a day-to-day level. It uses both the share’s change in price and the value of any dividends issued by the share.
DPS: Dividends (or distributions) per Share
(DISTRIBUTIONS / NUMBER OF SHARES IN ISSUE) * 100
Distributions include cash dividends, the cash equivalent of capitalisation dividends, and capital distributions. In the case of property and investment companies, debenture interest paid is included.
EPS: Earnings per Share
ATTRIBUTABLE INCOME BEFORE EXTRAORDINARY ITEMS BUT AFTER EXCEPTIONAL ITEMS / WEIGHTED NUMBER OF SHARES IN ISSUE) * 100
As shown in the above formula, this is the attributable income (ie, profits after tax available to shareholders) divided by the number of shares in issue.
Headline Earnings: Headline earnings are ordinary earnings with exceptional items and their tax effects stripped out. It gives a reflection of the sustainable earnings of a company, ie, earnings ability had exceptional items not occurred. Exceptional items are of a capital nature and are not related to the ordinary business of the company, eg, profit on the sale of a warehouse would be exceptional for a manufacturing concern, but not for a property company. Without tax information on the individual exceptional items, it is impossible to accurately calculate headline earnings. Headline earnings in ShareData™ are therefore as reported by the companies. See also Cont Ops.
HEPS: Headline Earnings Per Share
This is a ratio of total headline earnings for the period in relation to the weighted average number of ordinary shares in issue during the period (ie, headline earnings divided by issued shares). See Headline Earnings.
Liquidity (as a measure of tradeability):
The term liquidity can refer to a financial ratio or a measure of tradeability. In the latter sense it is expressed as the number of shares traded per annum as a percentage of total shares in issue. Liquidity in highly traded shares may exceed 100% (ie, turnover in shares exceeds shares in issue).
Nav per share: Net Asset Value per share.
See the Price/NAV ratio on the Valuation Data page.
(ORDINARY SHAREHOLDERS’ INTEREST /
NUMBER OF SHARES IN ISSUE) * 100
The per share value of shareholders funds including retained reserves. The ratio of share price to NAV gives an indication of the market’s confidence in the company. The higher the ratio, the higher the confidence. Note that the typical relationship of share price to NAV differs from one sector to another; exercise caution in comparing companies from different industries or sectors.
Beta (3 Yr Beta):
Beta is a measure of the volatility of a share in relation to a benchmark. If often shows volatility compared to the market as a whole (eg, using the FTSE/JSE All Share Index).
The default beta values in ShareData™ are calculated using weekly data for three years up to the end of the relevant reporting period. No beta is quoted if there is less than three years data available, and dividends are not included in the calculation.
Beta is a standard method of assessing the risk of a share (or fund) relative to a certain benchmark (we use the JSE All Share index as default). The basic measure of a share’s risk is its volatility (the extent to which the price fluctuates), so beta relates the volatility of a single share to the volatility of the benchmark. By definition, the beta of a benchmark is 1.00.
A share with a beta of 1.50 tends to move 50% more than the market in the same direction; a share with a beta of 0.50 tends to move 50% less. If a share moves exactly the same as the JSE All Share index, it will have a beta of 1.00. So volatile (relatively risky) shares have high betas, and a low beta is typical of a share that moves less than the market. A share with a negative beta moves in the opposite direction to the market. A share with a beta of -1.00 has the same volatility as the market, but tends to rise when the market falls, and vice versa. A beta of 0.00 means that the volatility of the share and the volatility of the index are statistically “unrelated” (it does not mean that the share is risk free!)
It is important to note that a low beta does not mean that a share’s level of risk is low in absolute terms. Rather, it means that the share’s market-related risk is low. A gold mine, for example, may have a low beta even though it is a highly risky (volatile) share. This is because its price is influenced predominantly by, say, the rand price of gold, not by fluctuations in the overall share market. In view of this, the betas calculated for ShareData™ are most relevant for those shares which are highly influenced by the JSE as a whole, and least relevant for those highly specialist companies which do not always follow the general market trend. The consistency of a share’s beta over time is one indication of the relevance of the beta value.
Cash Gen PS: Cash Generated Per Share
(NET CASHFLOW FROM OPERATING ACTIVITIES / WEIGHTED AVERAGE SHARES IN ISSUE) * 100000
Net cash flow generated by the company’s operating activities attributable to each share in issue during the reporting period.
Price High: JSE Market Price High (ZARc)
The highest trading price of the company’s share on the JSE during the reporting period.
Price Low: JSE Market Price Low (ZARc)
The lowest trading price of the company’s share on the JSE during the reporting period.
Price Prd End: JSE Market Price at Period End JSE (ZARc)
The trading price of the company’s share on the JSE at the end of the reporting period.
Vol Traded: Volume Traded (Actual))
The actual number of the company’s shares traded on the JSE during the reporting period.
R Val Trade: JSE Rand Value Traded (Actual)
The actual number of the company’s shares traded on the JSE during the reporting period.
Rolling 12 Month Dividend:
Sum of dividends paid over the preceding year (ZARc)
In most cases – because the majority of companies declare dividends half-yearly – this is simply the sum of the last two dividends, but note that special dividends are not excluded. Calculation of the figure can be contentious in certain circumstances – for example, when a company changes its year end or delays the declaration of a dividend.
At ProfileData we allow some leeway in the "12 month" rule when it is clear that a company is maintaining its dividend record. For example, if a company publishes its financial results promptly at the end of one financial year but somewhat late at the end of the next, there is a short period where, technically speaking, only one dividend falls within the preceding 12 month period. However, unless there is reason to believe the company may skip the next dividend, ProfileData Research will not reduce the Rolling 12 Month figure. The argument for not making adjustments is that even if there is some irregularity in the dividend payment dates – provided a company maintains its dividend record (eg, two dividends per annum), the yield to investors will be maintained.
The same principle is not followed where a company changes its year end. In spite of the allowance for the "irregularity" of dividend payments, the DY does represent an approximate annual yield, and a pro-rata adjustment therefore needs to be made when a company has a financial year of more or less than 12 months.
VWAP: Volume-Weighted Average Price
A simple average is the sum of two or more values divided by the number of items. VWAP is a more complex average that weights the result for volume. For example, consider three trades: 10 shares at R150, 20 shares at R151 and 100 shares at R155. The simple average price of the three trades is R152. The volume-weighted average – calculated by adding the value of each trade and dividing by the total number of shares traded – is R154.