2) Leverage ratios Companies often use short and long-term debt to finance business operations. Leverage ratios measure how much debt a company has. Molson Coors Beverage Co., the maker of Coors Light and Miller Lite beer for instance, had been saddled with debt, after an acquisition in the industry according to the Wall Street Journal. Its CFO Tracey Joubert signaled to the market the company's plans "reduce its leverage ratio to below 3 times by the end of this year." The types of leverage ratio to consider are: Debt ratio: Total Debt / Total Assets The debt ratio measures the proportion of debt a company has to its total assets. A high debt ratio indicates that a company is highly leveraged. Debt to equity ratio: Total Debt / Total Equity The debt-to-equity ratio measures a company's debt liability compared to shareholders' equity. This ratio is important for investors because debt obligations often have a higher priority if a company goes bankrupt. Interest coverage ratio: Operating income / Interest expenses Companies generally pay interest on corporate debt. The interest coverage ratio shows if a company's revenue after operating expenses can cover interest liabilities.
Dividend Valuation
Dividend refers to a reward or cash that a company gives to its shareholders out of the profits. Dividends can be issued in various forms such as cash payment, stocks, or in any other form as per the company norms. It is usually a part of the profit that the company shares with its shareholders.
Dividend Discount Model
Dividend payments are generally paid to investors or shareholders of a company when the company earns profit for the year, thus representing growth. The dividend discount model is an important method used to forecast the price of a company’s stock. It is based on the computation methodology that the present value of all its future dividends is equivalent to the value of the company.
Capital Gains Yield
It may be referred to as the earnings generated on an investment over a particular period of time. It is generally expressed as a percentage and includes some dividends or interest earned by holding a particular security. Cases, where it is higher normally, indicate the higher income and lower risk. It is mostly computed on an annual basis and is different from the total return on investment. In case it becomes too high, indicates that either the stock prices are going down or the company is paying higher dividends.
Stock Valuation
In simple words, stock valuation is a tool to calculate the current price, or value, of a company. It is used to not only calculate the value of the company but help an investor decide if they want to buy, sell or hold a company's stocks.
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