Mutual Funds

Mutual funds are investment vehicles which pool funds from its unit-holders and invest them according to a specific investment style. Mutual fund types include: open-end vs closed-end, load funds vs no-load funds,

Earnings Yield

Earnings yield is the ratio of earnings per share to current stock price. It measures dollars earned per $100 dollars invested in a company at current stock price. Earnings yield is the reciprocal of the price to earnings (P/E) ratio and it is expressed as a percentage.

Price to Sales Ratio

Price to sales ratio (P/S ratio) is the ratio of a company’s current stock price to its net sales revenue per share. Price to sales ratio is a relative valuation measure which values a company with reference to the sales revenue it generates. There are situations in which P/S ratio is more meaningful than the more popular ratios such as the price to earnings (P/E) ratio, etc., for example when there is net loss or where the net income is manipulated through creative accounting.

Price to Earnings Ratio

P/E ratio (i.e. price to earnings ratio) is the ratio of a company’s current stock price to its earnings per share. By comparing P/E ratios, we can identify undervalued and overvalued stocks. There are two variants: (a) trailing P/E ratio, which is calculated by dividing current stock price by last year EPS and (a) forward P/E ratio, which is calculated by dividing the current stock price with expected next year EPS.


PVGO stands for present value of growth opportunities and it represents the component of a company’s stock price that corresponds to the investors’ expectations of growth in earnings. PVGO can be calculated as the difference between the value of a company minus the present value of its earnings assuming zero growth. It is also called value of growth.

Free Cash Flow to Equity

Free cash flow to equity (FCFE) is the cash flow available for distribution to a company’s equity-holders. It equals free cash flow to firm minus after-tax interest expense plus net increase in debt. FCFE when discounted at the cost of equity returns the value of a company’s equity.

Free Cash Flow to Firm

Free cash flow to firm (FCFF) (also referred to as just the free cash flow) of a company is the cash flow in an accounting period which is available for distribution to the company’s debt-holders and equity-holders. FCFF equals net income adjusted for any non-cash expenses or incomes and working capital changes minus capital expenditures incurred during the period.


There are a range of measures used to determine a company’s net cash flows for valuation purpose, but free cash flow is the most appropriate. Free cash flow is the cash flow each period that is left for distribution to providers of capital. Other cash flow measures include cash flow from operations (CFO), earnings before interest, taxes, depreciation and amortization (EBITDA), funds from operations (FFO), etc.

Cash Flow from Operations

Cash flow from operations (CFO) represents the net cash flow of a company from its core operating activities. It can be calculated using either the direct method which finds out actual receipts from customer and payments to suppliers and others, or the indirect method which adjusts net income to arrive at net cash flow from operations.


Funds from operations (FFO) is a measure of cash flows used in real estate investment trusts (REIT) valuation. It equals net income plus depreciation expense plus deferred tax expense plus any loss on assets minus any gain on assets. AFFO stands for adjusted funds from operations and it equals FFO minus revenue accruals minus capital expenses.