FMP
Dec 27, 2023 8:38 AM - Parth Sanghvi
Financial ratios have long been the bedrock of investment analysis, offering insights into a company's performance and financial health. However, the landscape of financial markets has evolved, demanding a reevaluation and adaptation of these metrics. In this blog post, we delve into the changing dynamics of financial ratios, exploring their evolution, relevance, and adaptation to meet the demands of contemporary investment analysis.
Traditional financial ratios, such as Price-to-Earnings (P/E), Debt-to-Equity (D/E), and Return on Equity (ROE), have been fundamental in evaluating company valuations, leverage, profitability, and operational efficiency. While these ratios remain valuable, the complexities of modern markets require additional metrics and considerations.
Industries vary significantly, necessitating tailored metrics for accurate analysis. Metrics like Monthly Recurring Revenue (MRR) for subscription-based businesses, Customer Acquisition Cost (CAC) in technology sectors, or same-store sales growth in retail offer industry-specific insights beyond traditional ratios.
Non-financial metrics, including environmental, social, and governance (ESG) factors, brand value, customer satisfaction scores, and innovation metrics, are gaining prominence. These metrics supplement financial ratios by providing a holistic view of a company's performance and its impact on society and the environment.
Advancements in data analytics and the availability of vast datasets have transformed the way financial ratios are interpreted. Machine learning algorithms and big data analysis enable the extraction of deeper insights, predictive analytics, and real-time evaluation, amplifying the effectiveness of traditional ratios.
Tailored composite ratios combining financial and non-financial metrics offer comprehensive evaluations. Metrics like the Sustainable Growth Rate (SGR), Customer Lifetime Value (CLV) to Customer Acquisition Cost (CAC) ratio, or the Social Return on Investment (SROI) reflect a more inclusive and contemporary analysis framework.
The evolution of financial ratios is pivotal in aligning investment analysis with the complexities of modern markets. A blend of traditional and contemporary metrics, along with industry-specific and non-financial indicators, equips investors with a more comprehensive toolkit for evaluating companies and making informed investment decisions.
Sep 11, 2023 1:38 PM - Rajnish Katharotiya
Price to Earnings is one of the key metrics use to value companies using multiples. The P/E ratio and other multiples are relative valuation metrics and they cannot be looked at in isolation. One of the problems with the P/E metric is the fact that if we are in the peak of a business cycle, earni...
Sep 11, 2023 1:49 PM - Rajnish Katharotiya
Price-to-Earnings ratio is a relative valuation tool. It is used by investors to find great companies at low prices. In this post, we will build a Python script to calculate Price Earnings Ratio for comparable companies. Photo by Skitterphoto on Pexels Price Earnings Ratio and Comparable Compa...
Oct 17, 2023 3:09 PM - Davit Kirakosyan
Shares of VMware (NYSE:VMW) witnessed a sharp drop of 12% intra-day today due to rising concerns about China's review of the company's significant sale deal to Broadcom. Consequently, Broadcom's shares also saw a dip of around 4%. Even though there aren’t any apparent problems with the proposed solu...