Educational Programming Video
The Value Line Investment Survey
Program 18: Annual Rates of Change and Quarterly Sales, Earnings, and Dividends
In this session, we are going to discuss four items that appear in the lower left portion of each Value Line Investment Survey company report - ANNUAL RATES of Change (per share), QUARTERLY SALES, EARNINGS PER SHARE, and QUARTERLY DIVIDENDS PAID.
First, the Annual Rates Box. This box contains past and projected compound annual growth rates for Sales, Cash Flow, Earnings, Dividends, and Book Value. The first column shows the compound growth rates of each item for the past 10 years. The second column shows the compound growth rates for the past 5 years. The third column shows the projected growth rates for the coming 3 to 5 years.
In the opinion of our Research Director, the information contained here is among the most useful and revealing on the entire Value Line page. A quick look at the historical 10-year and 5-year growth rates along with the 5-year rates projected by the Value Line analyst shows if a company growth has been rising, remaining steady, or falling, and if the future growth projected by the Value Line analyst is likely to be faster, the same, or slower than it had been. In most cases, rising, or at least steady, trends are desirable.
By looking here, it is very easy to see the trends of five different important financial items. If the trends look favorable, then you can decide if further investigation of a stock is warranted.
We want to add one more thing here. And that is a quick discussion of how we calculate the compound growth rates. The important thing to know is that we use a three-year average for each base period and a three-year average for each ending period. Then we calculate the compound growth rate from the base period to the final period. We average the numbers in order to eliminate unusual fluctuations and to try to get growth rates that are as realistic as possible.
Investors occasionally try to calculate their own growth rates, and when they do, they often get different rates than Value Line does for the same periods. The reason for the difference is usually that the investor calculates the growth rates from one starting year to one final year, while we use a three average for both periods.
Now on to QUARTERLY SALES and EARNINGS PER SHARE. In these boxes, we show the quarterly and annual sales and earnings of a company for a total of five years. Actually reported results are shown in standard typeface, while the projections are shown in bold typeface. The month at the end of each interim period is shown at the top if each column, and the month at the end of the fourth column is also the one in which a company's fiscal year ends. Most companies report results for four equal quarters of 3 months (or 13 weeks) each, but not all do. There are actually many variations. PepsiCo, for example, has three 12-week interim periods followed by a 16-week period. Other companies have three equal quarters followed by one that ends on a specific day of the week, like the "Sunday closest to the 31st of January."
The quarterly sales and earnings boxes are an excellent place to look for changes in the direction of a company's results. By watching the changes in quarterly results from one year to the next, an investor can see if recent sales or earnings have been growing faster, the same, or more slowly than they had been. If growth does suddenly start of pick up or slow down, this is the first place that the change will be evident.
The QUARTERLY DIVIDENDS PAID box shows quarterly dividends paid, if any, for up to five calendar (or December) years. The final column shows the total amount of dividends paid per share for each full calendar year. The calendar year is always used here even though a company may have a fiscal year that ends in a month other than December. This is to help investors, most of whom pay their taxes on a calendar-year basis.
We have one final comment about dividends paid and dividends declared. In the quarterly dividends paid box, we show dividends actually paid in a calendar year. In the Statistical Array in the center of a Value Line report, we show dividends declared in a company's fiscal year. Depending on the timing of dividend payments and dividend declarations, the total amounts paid in a calendar year may often differ from dividends declared in a fiscal year. Don't be surprised when the numbers don't match.
That's it for now. Thanks for joining us. Be sure to watch www.valueline.com throughout the day to see our ongoing stock market commentaries and company analysis.
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