Metrics and Ratios Explained
How Metrics and Ratios Are Calculated
This page explains how the financial metrics and ratios displayed on ClarityVesting™ are calculated. All data is sourced from the EODHD financial API and processed using automated systems to provide consistent, comparable metrics for long-term investment analysis.
Historical Graphs
The historical graphs on each stock page are built from quarterly or annual financial data. These graphs show trends over time, allowing you to see how a company's financial health has evolved.
Stock Prices
Stock price graphs use adjusted closing prices from the EODHD API. Adjusted prices account for corporate actions such as stock splits, dividends, and other distributions, ensuring that historical price movements are comparable over time. This adjustment is critical for accurate long-term analysis, as it removes distortions that would otherwise make historical comparisons misleading.
How to use it: Adjusted prices allow you to see the true performance of a stock over time, free from the noise of corporate actions. Use this graph to understand long-term price trends and identify periods of significant appreciation or decline.
Revenue Growth (Year-over-Year)
Revenue growth is calculated by comparing a company's quarterly revenue to the same quarter from the previous year. The formula is:
Revenue Growth YoY = (Current Quarter Revenue - Previous Year Same Quarter Revenue) / Previous Year Same Quarter Revenue
This metric is expressed as a percentage, showing how much revenue has increased or decreased compared to the same period one year earlier.
How to use it: Consistent positive revenue growth indicates a company's ability to expand its business. Look for trends: accelerating growth is positive, while decelerating or negative growth may signal challenges. Compare revenue growth to industry peers to assess relative performance.
Free Cash Flow
Free cash flow represents the cash a company generates after accounting for capital expenditures necessary to maintain or expand its asset base. For the graphs, Free Cash Flow TTM (Trailing Twelve Months) is calculated by summing the free cash flow from the four most recent quarters.
The calculation uses quarterly cash flow statements, where free cash flow is derived from operating cash flow minus capital expenditures.
How to use it: Free cash flow is a key indicator of a company's financial strength and ability to invest in growth, pay dividends, or reduce debt. Positive and growing free cash flow is generally a positive sign. Companies with strong free cash flow have more flexibility to weather economic downturns and invest in future growth opportunities.
Debt to Equity Ratio
The debt-to-equity ratio measures a company's financial leverage by comparing its total debt to shareholders' equity. It is calculated as:
Debt to Equity = Total Debt / Total Stockholders' Equity
For historical graphs, quarterly balance sheet data is used. Total debt includes both short-term and long-term debt, and equity represents total stockholders' equity.
How to use it: A lower debt-to-equity ratio generally indicates a more financially stable company with less financial risk. However, the appropriate level varies by industry. Compare a company's debt-to-equity ratio to industry medians and watch for trends: increasing ratios may signal growing financial risk, while decreasing ratios suggest improving financial health.
Profit Margin
Profit margin shows what percentage of revenue a company retains as profit after all expenses. For historical graphs, profit margin is calculated using trailing twelve months (TTM) data:
Profit Margin = (Sum of Net Income for Last 4 Quarters) / (Sum of Total Revenue for Last 4 Quarters)
This metric uses quarterly income statement data, combining net income and total revenue over the trailing four quarters.
How to use it: Higher profit margins indicate better cost management and pricing power. Compare profit margins across time to see if a company is becoming more or less efficient. Also compare to industry peers to assess competitive positioning. Improving margins suggest operational efficiency, while declining margins may indicate competitive pressure or rising costs.
P/E Ratio (Price-to-Earnings Ratio)
The P/E ratio compares a company's stock price to its earnings per share (EPS). For historical graphs, the P/E ratio is calculated daily using the adjusted closing price divided by the trailing twelve months (TTM) earnings per share. The TTM EPS is calculated by summing the earnings per share from the four most recent quarters, using outstanding shares (non-diluted shares) in the calculation.
Important note: Extreme P/E ratio values (negative values or values greater than 500) are not represented in the historical graph, as these values are not meaningful for stock analysis. Negative P/E ratios occur when a company has negative earnings, while extremely high P/E ratios (above 500) typically indicate data anomalies or companies with minimal earnings relative to their stock price.
How to use it: The P/E ratio helps assess whether a stock is overvalued or undervalued relative to its earnings. Lower P/E ratios may indicate a stock is undervalued, while higher ratios may suggest overvaluation. However, P/E ratios should be compared within the same industry, as different sectors have different typical P/E ranges. Growth companies often have higher P/E ratios due to expected future earnings growth.
Latest Snapshot Metrics
The metrics displayed in the latest snapshot table represent the most recent available data point for each metric, providing a current snapshot of the company's financial position.
Industry Comparison and Color Coding
ClarityVesting uses the median instead of the average when comparing metrics to industry peers. The median is more stable and representative from a statistical perspective, as it avoids distorted values influenced by extremes. This makes it better suited for finding the typical value of an industry.
In the snapshot table, green and red color coding indicates how a stock's value compares to the median of its industry:
- P/E Ratio and Debt to Equity: Values above the industry median are colored red (less favorable), while values below the median are colored green (more favorable).
- Profit Margin and Revenue Growth: Values above the industry median are colored green (more favorable), while values below the median are colored red (less favorable).
Market Capitalization
Market capitalization (market cap) is sourced directly from the EODHD API. It represents the total market value of a company's outstanding shares, calculated as:
Market Cap = Current Stock Price × Number of Outstanding Shares
How to use it: Market cap helps categorize companies by size (large-cap, mid-cap, small-cap) and is useful for comparing companies of similar size. It also helps assess whether a company's valuation is reasonable relative to its peers and business fundamentals.
Beta
Beta is sourced directly from the EODHD API. Beta measures a stock's volatility relative to the overall market (typically the S&P 500). A beta of 1.0 means the stock moves in line with the market, while a beta greater than 1.0 indicates higher volatility, and less than 1.0 indicates lower volatility.
How to use it: Beta describes how a stock has historically reacted to market movements, which can be useful for understanding short-term volatility. However, for long-term investors, beta is a limited risk measure and should not be interpreted as an indicator of future returns. Long-term performance is more closely linked to business fundamentals and earnings growth than to beta.
P/E Ratio (Price-to-Earnings Ratio)
The P/E ratio is sourced directly from the EODHD API. This ratio compares a company's current stock price to its earnings per share (EPS).
Profit Margin
Profit margin in the latest snapshot is sourced directly from the EODHD API. This represents the most recent available profit margin calculation.
Revenue Growth
Revenue growth in the latest snapshot is sourced directly from the EODHD API. This represents the year-over-year revenue growth for the most recent quarter.
Debt to Equity
The debt-to-equity ratio in the latest snapshot is calculated from the most recent quarterly balance sheet data. The latest quarter's total debt (including both short-term and long-term debt) and total stockholders' equity are extracted from the balance sheet and used in the calculation:
Debt to Equity = Total Debt / Total Stockholders' Equity
This snapshot provides the most current view of a company's leverage. Compare it to the historical graph to see if the company's debt levels are trending up or down.
PEG Ratio (Price/Earnings to Growth Ratio)
The PEG ratio is sourced directly from the EODHD API. The PEG ratio adjusts the P/E ratio for expected earnings growth, providing a more nuanced view of valuation:
PEG Ratio = P/E Ratio / Earnings Growth Rate
How to use it: A PEG ratio below 1.0 may indicate that a stock is undervalued relative to its growth prospects, while a ratio above 1.0 may suggest overvaluation. The PEG ratio is particularly useful for evaluating growth stocks, as it accounts for expected earnings growth. However, be cautious with PEG ratios based on projected growth rates, as these are estimates that may not materialize.
Free Cash Flow
Free cash flow in the latest snapshot is calculated as Free Cash Flow TTM (Trailing Twelve Months) by summing the free cash flow from the four most recent quarters available in the cash flow statements. The free cash flow value from each of the last four quarterly cash flow statements is summed to arrive at the TTM figure. Compare it to the historical graph to see if free cash flow is improving or declining.
Understanding Discrepancies Between Snapshot and Graphs
You may notice that some metrics in the latest snapshot table differ from the most recent values shown on the historical graphs. This is expected and can occur for several reasons:
P/E Ratio Discrepancies
The P/E ratio in the snapshot uses diluted shares in its calculation, while the historical graph uses outstanding shares (non-diluted shares). This difference in share count methodology can cause the snapshot and graph values to diverge. Additionally, if there were any restatements of net income after earnings releases, these updated values may not be integrated into the historical graph data. The snapshot reflects the most current calculation available from the EODHD API, while the historical graph may use data from the original earnings release.
Revenue Growth Discrepancies
Similar to P/E ratios, revenue growth values can diverge when companies restate their revenue figures after earnings releases. The snapshot metric uses the most recently available data from the EODHD API, which may include restatements. The historical graph values are based on the data available at the time each quarter was processed, and may not reflect subsequent restatements.
Profit Margin Discrepancies
Profit margin discrepancies can occur when companies restate their net income or revenue figures. The snapshot uses the most current profit margin calculation from the EODHD API, while the historical graph values are calculated from quarterly data that may not yet reflect recent restatements. This is particularly common when companies revise their financial statements after initial earnings releases.
Data Source
All financial data used to calculate these metrics and ratios comes from the EODHD financial API, accessed under a valid commercial license with display rights. The data includes quarterly and annual financial statements (income statements, balance sheets, and cash flow statements), stock price data, and calculated metrics provided by the API.
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