Educational Programming Video
The Value Line Investment Survey
Program 14: The Statistical Array - Part 2
In this session we will continue our discussion of the information contained in the part of a Value Line page that we call the Statistical Array. This is the section of the report that contains a wide range of financial statistics, usually for many years in the past and a number of years going forward. For purposes of this discussion, we will refer to a "standard" industrial-type company, not a company with somewhat more unusual accounting terms or practices, such as a bank, an insurance company, or a utility.
The first item we will mention in this session is Cash Flow per share, which appears in the second line. As used by Value Line, and most others on Wall Street, Cash Flow per share is the sum of reported earnings after taxes plus depreciation and amortization, less any preferred dividends, and calculated on a per-share basis. It is an indicator of a company's internal cash-generating ability the amount of cash generated to expand or replace plant and equipment, to provide working capital, to pay dividends, to repay debt, or to repurchase stock. If a company doesn't generate enough cash internally to support its desired growth, management's only alternatives are usually to sell more stock or issue more debt. Large cash flow is, obviously, positive.
Moving down the page, the next item is Earnings per share, which appears in the third line from the top in the Statistical Array. Earnings per share are shown by Value Line as they were reported to stockholders, excluding nonrecurring items and adjusted for any subsequent stock splits or stock dividends. According to current accounting guidelines, company's now report share earnings two ways. The first is Basic earnings per share, which is the earnings available to common stockholders divided by the weighted average number of shares outstanding for a period. The second is Diluted earnings per share, which reflects the potential dilution that could occur if convertible securities or other contracts to issue common shares (like options or warrants) were exercised or converted into common stock. Value Line shows only one earnings figure in our statistical presentation; that figure is identified in the footnotes at the bottom of the page, and much more often than not, it is the Diluted earnings figure. This is usually the more conservative number.
Dividends Declared per share are shown in the next line. This number includes all payments declared, but not necessarily yet paid, during a year by a company's Board of Directors. (Once declared, a dividend is a legal obligation of a company.) The annual figure shown here may not always agree with the annual total shown in the quarterly dividend table in the lower left because that number shows dividends actually paid in a calendar year.
Capital Spending per share is a measure of how much a company is investing in new plant and equipment, either to replace current capital or to plan for future growth. This number is important because over the long term, steady capital investment is necessary to support sales growth. We would also note, however, that the level of annual capital spending is normally much greater for companies that require large amounts of plant and equipment than for companies that require much smaller amounts. Boeing and Dow Chemical are examples of companies with large capital needs. America Online and Merrill Lynch are examples of companies with relatively small capital needs.
Book Value per share is, theoretically, the portion of a company that an investor owns. It includes both tangible assets, like plant and receivables and inventories, as well as intangibles, like the value of patents or brand names, often known as "goodwill." (The amount of intangibles per share included in book value is shown in a footnote at the bottom of each report. Investors wishing to be conservative in assessing book value may choose to deduct the intangibles.) If all assets could be sold at the value stated on the company's books, all liabilities such as accounts payable, taxes, and long-term debt paid, and all preferred stockholders compensated, the book value is what would be left for the common stockholders.
Next we show the number of Common Shares Outstanding. This is the actual number of shares issued by a company at any particular time, before allowing for dilution from convertible securities, option, warrants, or any other corporate obligations. If Value Line's analyst anticipates that a company will need to sell additional shares to raise funds or, alternatively, will use available cash for a stock repurchase program, we will adjust the numbers to reflect those moves.
There is a lot more to cover on this subject, and we will continue the discussion of the items in the Statistical Array in the next session.
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