Financial Valuation Ratios and Other Investment Considerations
While working in Finance, managing my own investment portfolio, and researching investment opportunities I’ve come across a bunch of financial valuation ratios. Recently, I sat down to summarize 57 of them in one place to have a reference sheet for when I evaluate investments.
Some ratios are more useful than others generally, and some are more useful on a case by case basis depending on the sector being evaluated or the investment strategy such as long/short value, growth, activist or quantitative multi-factor. These ratios can be used for top down quantitative screening of the public market investment universe or combined with a bottoms-up company evaluation and comparables analysis. Non-quant long/short investors will generally also consider other contextual factors/data/drivers to develop and test their investment hypotheses / “stories”, so I’ve summarized a list of those too.
First, here is a summarized checklist of contextual considerations to help you understand the “story” driving an investment opportunity (*mostly for long/short equities):
1. Market size or TAM
2. Market growth rate
3. Market maturity
4. Secular trends influencing market
5. Headwinds influencing market
6. Political and geo-political events influencing the markets (local politics and policies, international relations, currency, etc.)
7. Competitors (number, size, pricing, technology etc.)
8. Substitute products
9. Technology (threat, opportunity etc.)
10. Customers (number, concentration, elasticity, strength, risks etc.)
11. Suppliers [Power of]
12. Supply chain (vertical or horizontal integration, resource dependence, risks, etc.)
13. Barriers to Entry / Moats (regulatory, IP, capital, brand and reputation, scale, switching costs, access to resources, network effects, oligopoly/monopoly etc.)
14. SWOT analysis
15. Culture (*difficult to measure)
16. Management [Strength of]
17. Amount of capital that can be put to work
18. Liquidity of investment and exit options
Now, here is my list of financial ratios.
For any additional information on any of them, Investopedia has great summaries.
Well done for making it this far and happy investing!
-Alex
