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Fundamental Analysis

Byrosanna prestia

Here are some guidelines on what I look for in companies

My top metrics for stocks:

1. FCF/Revenue also known as FCF Margin

FCF/Revenues is a measure of how effectively a company generates surplus Cash Flow from Revenues

A performance ratio that demonstrates a company’s operating cash flows AFTER subtracting operating expenses and capital expenditures. FCF is the cash generated that is FREE and clear of all internal and external obligations.

The higher the better. Generally over 5%.

2. FCF/MC or FCF/EV (I prefer latter) also known as FCF Yield

I prefer EV because EV (Enterprise Value) also factors in debt and cash in addition to Market Cap.

Market Cap = Total Outstanding Shares x Stock Price

EV = MC + DEBT – CASH

It is preferable to have a lower or similar EV compared to MC. Why? Since EV factors in debt then if EV is higher that means that the net from “Debt – Cash” is positive. Thus, Debt is higher than Cash.

FCF Yield or FCF/EV is a financial ratio that measures how much FCF is generated per the value of the company.

3. FCF/Invested Capital

This calculates the amount of cash flow generated by the company prior to consideration of how it may be financed (the total investment in the business from which operating profit is derived).

Invested Capital is calculated by subtracting the liabilities used in the operations from the assets used in the operations. It is the amount of NET money that has been invested in a business.

Measures how much FCF is generated per the invested capital.

The higher the better because we want MORE FCF per our NET invested money.

4. FCF/Historical FCF

This measure compares the current year FCF against the company’s historical FCF so it tells us if it is performing better, worse or same as its history.

A good way to decipher if a company is improving their FCF.

5. EV/Revenues (also known as EV/Sales)

EV/Rev is a financial ratio to quickly assess a company’s value compared to its sales revenue.

EV = MC + DEBT – CASH

Generally we want a LOWER number here. Simple algebra. Lower EV with HIGHER Sales Revenue.

6. FCF/Share

FCF per share is a measure of FCF a company generates per the total number of outstanding shares.

Remember as shareholders it is about how much “per share” Earnings “per share” and FCF “per share”

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