What Does Beta Mean?
A measure of a fund's sensitivity to market movements.
The beta of the market is 1.00 by definition. Morningstar calculates beta by comparing a fund's excess return over Treasury bills to the market's excess return over Treasury bills, so a beta of 1.10 shows that the fund has performed 10% better than its benchmark index in up markets and 10% worse in down markets, assuming all other factors remain constant.
Conversely, a beta of 0.85 indicates that the fund's excess return is expected to perform 15% worse than the market's excess return during up markets and 15% better during down markets. Beta can be a useful tool when at least some of a fund's performance history can be explained by the market as a whole. Beta is particularly appropriate when used to measure the risk of a combined portfolio of mutual funds.
It is important to note that a low beta for a fund does not necessarily imply that the fund has a low level of volatility. A low beta signifies only that the fund's market-related risk is low. (Standard deviation is a measure of a fund's absolute volatility.)
A specialty fund that invests primarily in gold, for example, will usually have a low beta, as its performance is tied more closely to the price of gold and gold-mining stocks than to the overall stock market. Thus, the specialty fund might fluctuate wildly because of rapid changes in gold prices, but its beta will remain low.
R-squared is a necessary statistic to factor into the equation, because it reflects the percentage of a fund's movements that are explained by movements in its benchmark index.
Example: A fund has an alpha of 0.86, a beta of 0.96, and an R-squared of 97. The high R-squared lends further credibility to the accuracy of the fund's alpha and beta. The beta of 0.96 indicates the fund's performance is very close to that of the market, which would be represented by 1.00.
What Does Price-Earnings Ratio - P/E Ratio Mean?
A valuation ratio of a company's current share price compared to its per-share earnings.
A fund's price/earnings ratio can act as a gauge of the fund's investment strategy in the current market climate, and whether it has a value or growth orientation.
The (P/E) ratio of a fund is the weighted average of the price/earnings ratios of the stocks in a fund's portfolio. The P/E ratio of a company, which is a comparison of the cost of the company's stock and its trailing 12-month earnings per share, is calculated by dividing these two figures.
At Morningstar, in computing the average, each portfolio holding is weighted by the percentage of equity assets it represents, so that larger positions have proportionately greater influence on the fund's final P/E.
A high P/E usually indicates that the market will pay more to obtain the company's earnings because it believes in the firm's ability to increase its earnings. Companies in those industries enjoying a surge of popularity (e.g.: telecommunications, biotechnology) tend to have high P/E ratios, reflecting a growth orientation. (P/Es can also be artificially inflated if a company has very weak trailing earnings, and thus a very small number in this equation's denominator.)
A low P/E indicates the market has less confidence that the company's earnings will increase; however, a fund manager or an individual with a 'value investing' approach may believe such stocks have an overlooked or undervalued potential for appreciation. More staid industries, such as utilities and mining, tend to have low P/E ratios, reflecting a value orientation.
What Does LTM PE Mean?
The Price/Earnings Ratio or P/E Ratio is a stock's current price divided by the company's trailing 12-month earnings per share.
LTM is an acronym for Last Twelve Months. LTM Price to Earnings is sometimes known as trailing Price to Earnings
What Does Forward PE Mean?
Forward PE is a calculation based on next years earnings expectations divided by the current market value per share. Forward estimates on Catalyst Corner are provided by Morningstar.
What Does Price/Earnings To Growth - PEG Ratio Mean?
A stock's price/earnings ratio divided by the company's projected EPS growth. The price/earnings ratio used in the numerator of this ratio is calculated by taking the current share price and dividing by the mean EPS estimate for the current fiscal year. A PEG Ratio means nothing in itself, so for comparison we show the industry and S&P 500 averages.
What Does Dividend Yield Mean?
A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated as follows:
What Does Price-To-Book Ratio Mean?
The price/book (P/B) ratio of a fund is the weighted average of the price/book ratios of all the stocks in a fund's portfolio. Book value is the total assets of a company, less total liabilities (sometimes referred to as carrying value). A company's book value is calculated by dividing the market price of its outstanding stock by the company's book value, and then adjusting for the number of shares outstanding (Stocks with negative book values are excluded from this calculation.).
In computing a fund's average P/B, Morningstar weights each portfolio holding by the percentage of equity assets it represents, so that larger positions have proportionately greater influence on the final P/B.
The price/book ratio can tell investors approximately how much they're paying for a company's assets, based on historical, rather than current, valuations. Historical valuations generally do not reflect a company's current market value. Value investors frequently look for companies that have low price/book ratios.
What Does Earnings Before Interest, Taxes, Depreciation and Amortization – EBITDA Mean?
An indicator of a company's financial performance which is calculated in the following EBITDA calculation:
EBITA = Revenue - Expenses (excluding tax,interest,depreciation and amortization)
Short for earnings before interest, taxes, depreciation, and amortization. EBITDA is often used instead of net income by companies with heavy depreciation charges on their income statements. Investors should always look at EBITDA with caution, because it’s not officially sanctioned by the nation’s accounting rules, and there’s no standard way of figuring it. Still, it can be a useful number to know in conjunction with — but not in place of — reported net income.
What Does EBITDA Margin Mean?
Equal to EBITDA divided by total revenue. EBITDA margin measures the extent to which cash operating expenses use up revenue.
What Does Enterprise Value Mean?
A valuation measurement used to compare companies with varying levels of debt.
EV = Market Capitalization + Interest Bearing Debt + Preferred Stock - Excess Cash
All data is provided by Morningstar
What Does EV to EBITDA Mean?
Enterprise Value to EBITDA, or EV / EBITDA, is a measure of the cost of a stock which is more frequently valid for comparisons across companies than the price to earnings ratio. Like the P/E ratio, the EV / EBITDA ratio is a measure of how expensive a stock is. It measures the price (in the form of enterprise value) an investor pays for the benefit of the company's cash flow (in the form of EBITDA)
What Does EBIT Mean?
An indicator of a company's profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is also referred to as "operating earnings", "operating profit" and "operating income", Calculated as:
EBIT = Revenue - Operating Expenses
What Does EV to EBIT Mean?
Enterprise value divided by Earnings before interest and tax (EBIT) EV / EBIT ratio indicates how many times the market values the operational result of the company.
What Does Enterprise-Value-To-Sales - EV/Sales Mean?
A valuation measure that compares the enterprise value of a company to the company's sales. EV/sales gives investors an idea of how much it costs to buy the company's sales. This measure is an expansion of the price-to-sales valuation, which uses market capitalization instead of enterprise value. EV/sales is seen as more accurate because market capitalization does not take into account as well as enterprise value the amount of debt a company has, which needs to be paid back at some point. Generally the lower the EV/sales the more attractive or undervalued the company is believed to be.
What Does LTM EBIT Growth Mean?
EBIT growth is the rate of change in earnings before interest and tax in the last twelve months compared to the prior twelve month period.
What Does LTM Sales Growth Mean?
Sales growth is the rate of change in sales in the last twelve months compared to the prior twelve month period.
What Does Debt / Capital Mean?
Debt/total cap for a fund's underlying stock holdings is calculated by dividing each security's long-term debt by its total capitalization (the sum of common equity plus preferred equity and long-term debt) and is a measure of the company's financial leverage.
All else being equal, stocks with high debt/total cap ratios are generally riskier than those with low debt/total cap ratios. Note that debt/total cap figures can be misleading owing to accounting conventions.
Because balance sheets are based on historic cost accounting, they may bear little resemblance to current market values. Morningstar aggregates debt/total cap figures for mutual funds using a median methodology, whereby domestic stocks are ordered from highest to lowest based on their debt/total cap ratios. One adds up the asset weighting of each holding until the total is equal to or greater than half of the total weighting of all domestic stocks in the fund. The debt/total cap for that stock is then used to represent the debt/total cap of the total portfolio.
What Does Correlation Mean?
A statistical measure of how two securities move in relation to each other
What Does Cointegration Mean?
Cointegration is the statistical confidence that a pair will revert to the mean
What Does Net Long Exposure Mean?
Net Long Exposure is calculated as portfolio long value less portfolio short value.
More information can be found at the Morningstar Investing Glossary