Recently we received an email from a reader who is teaching himself about value investing through a book by Janet Lowe. In the book, there is a list of formulas and ratios from the balance sheet and the reader is attempting to use Value Line to double check his work. However, the ratios do not translate word for word, so as a beginner investor he is having difficulty determining where to find his information. In this post we hope to alleviate some of that challenge and provide a little bit more insight into the power of Value Line.
These are the ratios he is considering, and how to find the information in Value Line:
- Book Value: (Total Assets – Intangible Assets – Total Liabilities) / Outstanding Common Shares ; This is found directly on the right side of the Value Line page, titled Book Value per share.
- Debt/Equity: Total Liabilities / Shareholders’ Equity ; Not provided directly by VL, a simple calculation using Total Debt (listed under Capital Structure) and Shareholders’ Equity (on the right side) reveals the ratio.
- Working Capital: Current Assets – Current Liabilities ; Found directly on the right side of the page.
- Current Ratio: Current Assets / Current Liabilities ; Not directly provided, the requisite figures are both found under the Current Position section on the left.
- Net Quick Asset Value: Current Assets – Inventory – Current Liabilities ; Not directly provided, the information is found in the Current Position section.
- Quick Ratio: (Current Assets – Inventory) / Current Liabilities ; Same as previous ratio.
- Net Net: Current Assets – Current Liabilities – Long Term Debt ; Simple calculation of Working Capital (found on the right) – Long Term Debt (also found on the right)
- Net Net Current Assets per Share: Net Net / Outstanding Shares ; Common Shares outstanding is found on the right side of the page.
- Price/Earnings Ratio: Found at the top of the page
- Profit Margin: Gross Profit / Total Sales ; Listed as Net Profit Margin, found on the right side.
Overall, Value Line is an excellent source for the average individual investor seeking to do some research before purchasing. Most libraries subscribe to the service and a simple trip can yield a lot of information. However, most of the information found on the typical Value Line page can be found via Yahoo Finance or other free online sources. The real value in Value Line is the timeliness ranking. The folks at VL review all 1700 companies on their horizon and rank them from 1-5, with 1 as the best. Over the long-term, a portfolio holding 1′s in timeliness has significantly outperformed. We highly recommend the use of Value Line in the defensive and enterprising investor’s research regimen.
Thanks for the great question, Bob!