Fundamental Analysis & Valuation — 70 Terms Defined

Altman Z-Score Fundamental Analysis & Valuation ratio (x, times) A weighted combination of five financial ratios that estimates a company's likelihood of financial distress. Z = 1.2 x (Working Capital/Total Assets) + 1.4 x (Retained Earnings/Total Assets) + 3.3 x (EBIT/Total Assets) + 0.6 x (Market Value of Equity/Total Liabilities) + 1.0 x (Sales/Total Assets)

Asset Turnover Ratio Fundamental Analysis & Valuation ratio (x, times) Revenue divided by total assets, measuring how much sales the asset base generates. Asset Turnover = Revenue / Average Total Assets

Book Value per Share Fundamental Analysis & Valuation ₹ Shareholders' equity divided by the number of shares outstanding — the accounting value attaching to one share. Book Value per Share = Shareholders' Equity Attributable to Owners / Shares Outstanding

Capital Allocation Fundamental Analysis & Valuation qualitative Management's decisions about where to deploy the cash a business generates: reinvestment, acquisitions, debt repayment, dividends or buybacks. Test: incremental capital deployed earns a return above the cost of capital, judged over several years

Capital Asset Pricing Model Fundamental Analysis & Valuation % A model that estimates the return required on an asset as the risk-free rate plus a premium proportional to its market risk. Expected Return = Risk-Free Rate + Beta x (Expected Market Return - Risk-Free Rate)

Cash Conversion Cycle Fundamental Analysis & Valuation days The number of days between paying for inputs and collecting cash from customers. Cash Conversion Cycle = Inventory Days + Debtor Days - Creditor Days

Comparable Company Analysis Fundamental Analysis & Valuation qualitative The selection and adjustment of a peer group whose multiples are used to value a target company. Test: peers share the business model, growth profile, margin structure, capital intensity and regulatory environment of the target

Compound Annual Growth Rate Fundamental Analysis & Valuation % The constant annual rate at which a value would have had to grow to move from its starting figure to its ending figure. CAGR = (Ending Value / Beginning Value) raised to (1 / Number of Years) - 1

Consensus Estimate Fundamental Analysis & Valuation ₹ The average of analysts' forecasts for a company's future earnings, revenue or other metric. Consensus Estimate = Mean or Median of Contributing Analysts' Individual Forecasts

Cost of Equity Fundamental Analysis & Valuation % The return shareholders require for bearing the risk of owning a company's shares. Cost of Equity = Risk-Free Rate + Beta x Equity Risk Premium

Current Ratio Fundamental Analysis & Valuation ratio (x, times) Current assets divided by current liabilities, measuring whether short-term obligations are covered by short-term assets. Current Ratio = Current Assets / Current Liabilities

Debt Service Coverage Ratio Fundamental Analysis & Valuation ratio (x, times) Cash available for debt service divided by the total of interest and principal due in the period. DSCR = Cash Available for Debt Service / (Interest + Principal Repayment Due)

Debt-to-Equity Ratio Fundamental Analysis & Valuation ratio (x, times) Total borrowings divided by shareholders' equity, measuring how much of the business is funded by lenders relative to owners. Debt-to-Equity = Total Debt / Shareholders' Equity

Debtor Turnover Ratio Fundamental Analysis & Valuation ratio (x, times) Revenue divided by average trade receivables, showing how many times a year credit sales are collected. Debtor Turnover = Revenue / Average Trade Receivables; Debtor Days = 365 / Debtor Turnover

Diluted Earnings per Share Fundamental Analysis & Valuation ₹ Earnings per share recalculated as if every instrument convertible into equity had already been converted. Diluted EPS = Adjusted Profit / (Weighted Average Shares + Shares from Conversion of Dilutive Instruments)

Dilution Fundamental Analysis & Valuation % The reduction in existing shareholders' proportional ownership and per-share claims caused by issuing new shares. New Ownership % = Old Shares Held / (Old Shares Outstanding + New Shares Issued) x 100

Discounted Cash Flow Fundamental Analysis & Valuation ₹ crore A valuation method that estimates a business's worth as the present value of the cash it is expected to generate. Value = Sum of (Cash Flow in Year t / (1 + Discount Rate) raised to t) + Present Value of Terminal Value

Dividend Discount Model Fundamental Analysis & Valuation ₹ A valuation method that values a share as the present value of all the dividends it is expected to pay. Value = Sum of (Expected Dividend in Year t / (1 + Required Return) raised to t)

DuPont Analysis Fundamental Analysis & Valuation % A decomposition of return on equity into profit margin, asset turnover and financial leverage, showing what drives the return. ROE = Net Profit Margin x Asset Turnover x Equity Multiplier = (Profit/Sales) x (Sales/Assets) x (Assets/Equity)

Earnings Growth Fundamental Analysis & Valuation % The rate at which a company's profit increases from one period to the next. Earnings Growth = (Current Period Earnings - Prior Period Earnings) / Prior Period Earnings x 100

Earnings per Share Fundamental Analysis & Valuation ₹ Net profit attributable to equity shareholders divided by the weighted average number of shares outstanding. EPS = Profit Attributable to Equity Shareholders / Weighted Average Shares Outstanding

Earnings Quality Fundamental Analysis & Valuation qualitative The extent to which reported profit is backed by cash, is repeatable, and reflects the underlying business rather than accounting choices. Test: cumulative operating cash flow tracks cumulative net profit over several years, with few exceptional items and stable accounting policies

Earnings Yield Fundamental Analysis & Valuation % Earnings per share expressed as a percentage of the share price — the inverse of the price-to-earnings ratio. Earnings Yield = Earnings per Share / Market Price per Share x 100 = 1 / P/E x 100

EBITDA Margin Fundamental Analysis & Valuation % EBITDA as a percentage of revenue, measuring operating profitability before depreciation, interest and tax. EBITDA Margin = EBITDA / Revenue x 100