How Financial Statements Drive Stock Valuation Ratios
Understanding how financial statements influence valuation measures helps you spot both positive and negative changes.
Explanation of nine key valuation ratios tied to the income statement, balance sheet and cash flow statement
How financial statement trends influence ratios such as price multiples and yields
Guidance on analyzing valuation changes through revenues, profits, cash flow, dividends, buybacks, debt and capital spending
Valuation ratios help you determine whether a stock’s share price is cheap, reasonable or expensive. Each valuation ratio is tied to one or more of the three financial statements: the balance sheet, the income statement and the cash flow statement.
The financial statements show you both a company’s fiscal trends as well as changes in dividends and shares outstanding. The last metric affects most valuation measures: Reductions in the number of outstanding shares raise the ownership percentage of each remaining share. Increases in the number of outstanding shares have the opposite effect.
In this installment of our financial statement analysis series, we show you how the financial statements impact nine key valuation ratios.