What does it mean when company's ratios fall below industry standards?
Luna Lighting, a retain firm, has experienced modest sales growth over the past three years but has had difficlty translating the expansion of sales into improved profitability. Using three years financial statements, you have developed the following ration calculations: Industry 2009 2008 2007 2009 Current 2.3X 2.3X 2.2X 2.1X Average collection period 45 days 46 days 47 days 50 days Inventory turnover 8.3X 8.2X 8.1X 8.3X Fixed asset turnover 2.7X 3.0X 3.3X 3.5X Total asset turnover 1.1X 1.2X 1.3X 1.5X Debt ratio 50% 50% 50% 54% Times interest earned 8.1X 8.2X 8.1X 7.2X Fixed charge coverage 4.0X 4.5X 5.5X 5.1X Gross profit margin 43% 43% 43% 40% Operating profit margin 6.3% 7.2% 8.0% 7.5% Net profit margin 3.5% 4.0% 4.3% 4.2% Return on assets 3.7% 5.0% 5.7% 6.4% Return on equity 7.4% 9.9% 11.4% 11.8% what does it mean when the ratios are below industry standards?
What does a low PE ratio indicate versus a high?
blue chip stocks trade based on their dividends and also based on their earnings...most good stocks trade based on their earnings...So Price to earnings ratio (P/E) is important for evaluating the expeniveness of the stock. For a blue chip stock A P/E of less than 13, indicates that the stock is probably underpriced, whereas a P/E of over 18 would indicate an overpriced position. For growth stocks, the P/E would probably always be in the overpriced position as the market is valuating the company on what the market hopes it's earnings will be in the future I like Low P/E stocks because they tend to be a surer way to go (value Investing) Negative correlation is having some investments that go up in value at different times of the market cycle In General, Bonds are negatively correlated with stocks, Stocks going up, bonds are probably going down. This smooths out the volitility of your investment portfolio. The are different sexctors of stocks that rise faster in different parts of the investment cycle (resources, financial services, transports Etc.).... A diversification over many sectors smooths out volatility as well