We have posted several key ratios on each of the five stocks covered in this article. Investors would be better off familiarizing themselves with the some of these ratios, as they could prove to be useful in the selection process. Understanding what these ratios mean could make the difference between spotting a winner or a loser.
Enterprise value is a combination of the market cap, debt, minority interests, preferred shares less total cash and cash equivalents. This provides a better picture, because it is a more accurate representation of a company's value contrary to simply looking at the Market cap.
Long-term debt-to-equity ratio is the total long-term debt divided by the total equity. The amount of long-term debt a company carries on its balances sheet is very important, because it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase, the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital, which could, in the worst case scenario, lead to bankruptcy.
The payout ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates that the company is paying out more money to shareholders than they are making; this situation cannot last forever. In general, if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for sometime. If the payout ratio continues to increase, the situation warrants close monitoring, since this cannot last forever; if your tolerance for risk is low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest 5 Interesting Communication Plays
Turnover Ratio lets you know the number of times a company's inventory is replaced in a given time period. It is calculated by dividing the cost of goods sold by average inventory during the time period studied. A high turn over ratio indicates that a company is producing and selling its good and services very quickly.
Debt to Equity Ratio is found by dividing the company's total amount of long-term debt (debts with interest rates that have a maturity longer than one year) by the total amount of equity. A debt to equity ratio of 0.5 tells us that the company is using 50 cents of liabilities in addition to each $1 dollar of shareholders equity in the business. There is no fixed ideal number, as it depends on the industry the company is in. However, in general, a ratio under 1 is acceptable and ideally, it should be in the 0.5-0.6 ranges.
Asset turnover is calculated by dividing revenues by assets. It measures a firm's effectiveness at using its assets in generating revenue. Higher numbers are generally better, and vice versa. In general, companies with low profit margins have higher asset turnover rates then companies with high profit margins.
ROE is obtained by dividing the net income by share holder's equity. It measures how much profit a company generates with the money shareholders have invested in it.
Price to tangible book is obtained by dividing share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general, stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to
Quick ratio or acid -test is obtained by adding cash and cash equivalents plus marketable securities and accounts receivable and dividing them by current liabilities. It is a measure of a company's ability to use its quick assets (assets that can be sold of immediately at close to book value) to pay off its current liabilities immediately. A company with a quick ratio of less than 1 cannot pay back its current liabilities. Additional key metrics are addressed in this article 5 Interesting Stocks With Superb Yields
Our favorite play is Western Gas Partners LP (WES), and we chose it over the rest, even though it has a relatively short dividend history, because its total rate of return in 4 years was higher than the 10 year total return of any other play on the list.
Western Gas Partners LP is our play of choice for the following reasons.
Important facts investors should be aware in regards to investing in MLPs
Payout ratios are not that important when it comes to MLPS, which generally pay a majority of their cash flow as distributions. Payout ratios are calculated by dividing the dividend/distribution rate by the net income per share, and this is why the payout ratio for MLPs is often higher than 100%. The more important ratio to focus on is the cash flow per unit. If one focuses on the cash flow per unit, one will see that in most cases, it exceeds the distribution declared per unit.
MLPs are not taxed like regular corporations, because they pay out a large portion of their income to partners (as an investor, you are basically a partner and are allocated units instead of shares) usually through quarterly distributions. The burden is thus shifted to the partners who are taxed at their ordinary income rates. As ordinary income tax rates of investors are typically lower than the income tax assessed on corporations, this arrangement is advantageous to the MLPs, and generally to most investors.
MLPs issue a Schedule K-1 to their investors. Unrelated business income [UBI] above $1,000 is taxable in an IRA. This information will appear Box 20 in the schedule K-1. UBI is typically a very small number usually well below $1000, and in some cases negative. If the MLP pays out distributions in excess of the income it generates, the distribution is classified as a "return of capital" and tax deferred until you sell your units. For more information, on this topic investors can visit the National Association of Publicly Traded Partnerships.
Stock | Dividend Yield (%) | Market Cap | Forward PE | EBITDA | Quarterly Revenue Growth | Beta | Revenue | Operating Cash flow |
(CVX) | 3.00 | 214.5B | 8.16 | 51.10B | 13.30% | 0.78 | 247.00B | 40.2B |
(SNH) | 6.90 | 3.57B | 11.49 | 336.95M | 39.90% | 1.06 | 409.07M | 225.86M |
(HPT) | 7.10 | 3.13B | 7.79 | 576.56M | 13.30% | 1.39 | 1.18B | 350.85M |
(WES) | 3.90 | 4.07B | 22.7 | 256.27M | 42.90% | 0.49 | 610.86M | 262.10M |
(VOD) | 3.40 | 142.10B | 10.25 | 23.11B | 4.10% | 0.76 | 73.43B | 18.33B |
No comments :
Post a Comment