This is a post written by Mark Gran and can be found athttp://granvestor.wordpress.com/2010/08/23/investment-research/ GranVestor Value Investing Blog
, is the proportion of revenues remaining after paying thecosts of operating the business, such as labor costs (wages), raw materials, overhead,depreciation and amortization, selling, general, and administrative expenses,advertising, etc. It is similar to the profit margin except it does not include all costs, soit will be higher than the profit margin. Operating margin can be calculated bydividing Operating Profit by Net Sales.
is how much of the stock is owned by the management of thecompany. I look for stocks with a high percent of insider ownership, under the theorythat when management are shareholders, they will act in its own self interest, andcreate shareholder value in the long-term.
measures how liquid the company is and shows if they have theresources to pay of their liabilities over the next 12 months.
, is the price of the stock divided by its EPS of the last twelvemonths. This is probably the most popular metric to valuing a stock. In general, a highP/E suggests that investors are expecting higher earnings growth in the futurecompared to companies with a lower P/E. However, the P/E ratio doesn’t tell us thewhole story by itself. It’s usually more useful to compare the P/E ratios of one companyto other companies in the same industry, to the market in general or against thecompany’s own historical P/E. I look for companies of with a P/E of less than 15 andbelow the industry averages.