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A financial ratio or accounting ratio states the relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers ...
In 2015, Fama and French extended the model, adding a further two factors — profitability and investment. Defined analogously to the HML factor, the profitability factor (RMW) is the difference between the returns of firms with robust (high) and weak (low) operating profitability; and the investment factor (CMA) is the difference between the returns of firms that invest conservatively and ...
Valuation using multiples. In economics, valuation using multiples, or "relative valuation", is a process that consists of: identifying comparable assets (the peer group) and obtaining market values for these assets. converting these market values into standardized values relative to a key statistic, since the absolute prices cannot be compared.
Industry average. Industry averages (of financial ratios) are generally using as benchmarks or tools which helps business to make comparisons that helps to determine its position within the industry and evaluate financial performance of the business. [1] It is a useful tool for business managers and investors, helps with decision making process ...
Also, rough market comparison tools such as the PE ratio and the PEG ratio are used. More sophisticated forms of analysis (fundamental analysis, quantitative analysis, and behavioral analysis) use also some market criteria, such as the risk premium or beta coefficient.
Tobin's q [a] (or the q ratio, and Kaldor's v), is the ratio between a physical asset's market value and its replacement value.It was first introduced by Nicholas Kaldor in 1966 in his paper: Marginal Productivity and the Macro-Economic Theories of Distribution: Comment on Samuelson and Modigliani.
Various leverage or gearing ratios are closely watched by financial analysts to assess the amount of debt in a company's capital structure. [4] [5] The Miller and Modigliani theorem argues that the market value of a firm is unaffected by a change in its capital structure. This school of thought is generally viewed as a purely theoretical result ...
Return on capital. Return on capital (ROC), or return on invested capital (ROIC), is a ratio used in finance, valuation and accounting, as a measure of the profitability and value-creating potential of companies relative to the amount of capital invested by shareholders and other debtholders. [1] It indicates how effective a company is at ...