Education Archive

Are binary options trading just a big scam?

Binary options have become very popular recently and the trade volumes are growing at very high rate similar to forex trading. It has gained huge reputation amongst novice investors who prefer online trading because of its simplicity and huge payouts. As the name implies, binary options has two possible outcomes: either the trader wins and

Mebane Faber Shareholder Yield Backtest

A commenter on Fat Pitch Financials recently suggested that I take a look at shareholder yield.  After reading my “How Does a Change in Shares Outstanding Impact Stock Returns?” article, they suggested that dividend investors might also be interested in shareholder yield, and also the related Mebane Faber version of shareholder yield.   I was not

Free Cash Flow to Enterprise Value Backtest – $50 Million Minimum Market Cap

This is a revised version of the backtest on the free cash flow to enterprise value ratio backtest posted a few weeks ago.  The free cash flow to enterprise value ratio is a rather sophisticated valuation ratio that should be a part of every value investors toolkit.  It is inspired in part by the discounted

Free Cash Flow to Enterprise Value Backtest

The free cash flow to enterprise value ratio is a rather sophisticated valuation ratio that should be a part of every value investors toolkit.  It is inspired in part by the discounted cash flows method of company valuation. I have previously backtested the price to free cash flow ratio, so it is high time that I

How to Avoid Value-Traps with Net-Net Stocks

Net-net stocks are those which sell below liquidation value and are major bargains. Avoid being a victim of value traps by only investing in net-nets which: Generate revenue, experience NCAV Burn of less than 25% annually, aren’t based in China or if you are risk averse, aren’t Chinese, have sold at a price above the

How Does a Change in Shares Outstanding Impact Stock Returns?

A reduction in shares outstanding can occur as a result of a company stock buyback. A buyback is when a company repurchases its stock with the goal of reducing the number of its share on the market. As you can imagine, a reduction in shares outstanding is likely to impact stock returns. However, I was not

Return on Invested Capital (ROIC) Backtest

The Return on Invested Capital (ROIC) ratio is a very popular measure of company “quality” among value investors. Many even use this metric as part of their valuation models to account for future sustainable growth. Professor Aswath Damodaran discusses the significance of ROIC in detail in his widely quoted paper, Return on Capital (ROC), Return on Invested

5-Year Average Return on Investment Backtest

I decided to also backtest the 5-Year Average Return on Investment (ROI) in order to see how it compared to my recent 5-Year Average Return on Equity Backtest. We can also compare this 5-year average ROI backtest to the trailing twelve-month Return on Investment ratio backtest performance I ran a few weeks ago. I used the data and

5-Year Average Return on Equity Backtest

I recently updated my Return on Equity backtest. One of the suggestions I received was to test the 5-year average return on equity. I decided to test that out and compare it to the trailing twelve-month return on equity ratio backtest performance. I used the data and backtesting tool provided by Portfolio123. The Portfolio123 backtesting eliminates the

Return on Equity Backtest

Updated March 1, 2015 with 2014 data. Originally posted June 11, 2014. The Return on Equity (ROE)  is a commonly used profitability metric. ROE measures a company’s efficiency at generating profits from every unit of shareholders’ equity. It is often used in conjunction with a DuPont analysis, which breaks down ROE into three components. Those components are profit