Screen ratio

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sekyzhuo

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book value or CFO? I cannot remember the other two choices.

Can anyone give some clue on it? Thanks.
 
Just put CFO- guessed. If it was cash flow it should have been FCFE but could not justify others.
 
i chose book value. i remember the question. it was this:

guy is creating filters to screen stocks based on ROE and P/S. What other filter should he add to get rid of meaningless results?

Book value is the correct answer (i think). Net Income for a distressed company can be negative, and so can that firm's equity. But (-net income)/(-equity) = +ROE. these positive ROE's are meaningless because the firm is obviously not profitable.
 
i put CFO because sometimes you can have high growth startups with positive ROE and low price to sales but all from taking on more debt trying to grow the business and negative CFO
 
topher Wrote:
-------------------------------------------------------
> i chose book value. i remember the question. it
> was this:
>
> guy is creating filters to screen stocks based on
> ROE and P/S. What other filter should he add to
> get rid of meaningless results?
>
> Book value is the correct answer (i think). Net
> Income for a distressed company can be negative,
> and so can that firm's equity. But (-net
> income)/(-equity) = +ROE. these positive ROE's are
> meaningless because the firm is obviously not
> profitable.
But book value in P/BV is book value of equity. By your reasoning BV will be negative as well.
 
exactly. he needs to screen negative book values out of his data
 
when you screen though aren't you looking for companies to pop up in the screen, you could screen for P/BV but i think it just said book val.. so if you added book value to the screen woudln't you get negative book value returns as part of your screen whereas using CFO you'd get the companies with positive CFO
 
The book really pushed that P/BV was a better option vs. the other ratios b/c it couldn't be manipulated as easily and it couldn't be negative except for the historical cost problem. That is why I went with P/BV. Gives things another dimension.
 
I put CFO.. I think the book says its the best when all else fails.
 
Is it related to Dupont?

I put book value and just thought ROE=NI/E, ROE can be still high with low equity.
 
I went with Cash Flow. You can make a lot of $$$ on your books but in the end that's just on paper and in reality cash is king. if you can't bring in cash from your operations you will either have borrow (higher risk for current sharehoulders), issue more stock (bad for current shareholders), or file chapter 7.
 
whodey Wrote:
-------------------------------------------------------
> I went with Cash Flow. You can make a lot of $$$
> on your books but in the end that's just on paper
> and in reality cash is king. if you can't bring
> in cash from your operations you will either have
> borrow (higher risk for current sharehoulders),
> issue more stock (bad for current shareholders),
> or file chapter 7.


FWIW, there is a Schweser QBank question very similar to this, but instead of CFO it is dividend. I chose dividend with the same thinking as CFO. Anyway, the correct answer was book value, citing negative book value with negative earnings = positive ROE
 
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Edited 1 time(s). Last edit at Monday, June 9, 2008 at 09:13PM by whodey.
 
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