The Anatomy of an Exceptional Stock: Video Guide

Anatomy

By Sam Eder. Get updates of new posts here

You have a right to be very picky.

It’s your hard earned money, so there is no way you should accept anything less than the best when you purchase a stock.

In this video guide you will learn four criteria to assess to tell if the stock you are buying has an exceptional business behind it.

Over time these stocks tend to perform better, and produce greater returns on your investment.

Here are the four criteria to assess:

  • A healthy return on equity
  • Little or no debt
  • Genuine cash flow
  • Earnings per share growth

If you can buy stocks with strength is these areas that are also showing signs of value or growth, then it may be a stock worth buying.

And if your stock it not exceptional? Best you leave you money off the table – another will come.

How to Find Return on Equity on a Stock

 

I’m now going to show you how to find the Return on Equity on a stock. So the best resource for finding the Return on Equity is Reuters. So we go to ‘Reuters’ down to ‘Markets’, click on ‘Stocks’.

The next step in finding the Return on Equity is to enter the stock in here; in this case I’m going to use Burberry. Click here, and you’ll see you can find the Return on Equity here on the summary screen. Return on Equity is 29.55%.

You can also find the Return on Equity by going to the ‘Financials’ screen. In the ‘Financials’ screen, you’ll find the Return on Equity at the bottom here under ‘Management Effectiveness’.

So the trailing 12 months (TTM) Return on Equity is 29.55% compared to the Industry Average of 13.86 and the Sector Average of 20.53. You can also see a five year average of the Return on Equity.

So that’s how you find the Return on Equity on a stock.

How to Find the Net Debt to Equity Ratio on a Stock

 

I’m now going to show you how to find the net Debt to Equity Ratio on a Stock.

So to do that we go to Reuters, click on Reuters, down to Markets, Stocks.

To find the net Debt to Equity Ratio we type in the stock name, ‘Search’, and we click here on the stock.

Now we won’t find the net Debt to Equity Ratio on the ‘Overview’ screen. We need to go to the ‘Financials’ screen.

Once you are on the ‘Financials’ screen you will find the net Debt to Equity Ratio under ‘Financial Strength’, Total Net Debt to Equity – Most Recent Quarter. The Total Debt to Equity ratio is 12.27%.

So that’s how you find the Debt to Equity Ratio on a stock.

How to Calculate the Cash Flow Ratio of a Stock

 

I’m going to take you through how to calculate the Cash Flow Ratio of a Stock. So to do this we need to go to ‘Yahoo! Finance’, we need to enter the stock symbol.  I will use Burberry.

We need to go to the ‘Key Statistics’ section here on the ‘Yahoo! Finance’ for Burberry.

To calculate the Cash Flow Ratio, we need two things from here: we need the ‘Operating Cash Flow’, this here, and we need the ‘Net Income’ here.

Next we need to get out our calculator.  To find the Cash Flow Ratio we take the ‘Operating Cash Flow’, 425.2, and we divide it by the Net Income’, 322.5.

And that’s going to give us here a Cash Flow Ratio 1.3.

So that’s how to calculate the Cash Flow Ratio of a Stock.

How to Find Earnings Per Share Growth on a Stock

 

I’m now going to show you how to find Earnings per Share growth on a Stock.

So the best free place for finding Earnings per Share growth on a stock is Reuters. Go to ‘Reuters’, ‘Markets’ and then we go down to ‘Stocks’.

To find Earnings per Share growth first we need to select the stock.

We go to the stock and in this case I’ve chosen Burberry. You won’t find the Earnings per Share growth on the ‘Overview’ screen. What you will see is Earnings per Share; so don’t get confused between Earnings per Share and Earnings per Share growth. It’s Earnings per Share growth we’re looking to find.

To do that, we need to go to the ‘Financials’ screen; and we’ll find earnings per share growth down here under ‘Growth Rates’.

You have Earnings per Share Growth – Most Recent Quarter, this is one quarter ago, that’s 23.57%. Earnings per Share Trailing 12 Months vs Trailing 12 months one year ago here is 26.58%.

And sometimes you also see Earnings per Share an average over five years. In this case it’s not showing on Reuters’ data for Burberry.

So that’s how you find Earnings per Share growth for a stock.

Sam Eder writes at spoonfedinvestor.com about how to master the art and science of investing. If you enjoyed this article, join his newsletter.

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