Educational Programming Video
The Value Line Investment Survey
Program 20: Financial Strength, Stock's Price Stability, Price Growth Persistence, and Earnings Predictability, plus footnotes
This is the final session in which we will discuss material contained on a typical page in The Value Line Investment Survey. We will focus on the four financial ranks or indexes contained in the lower right hand corner of each page as well as the footnotes shown at the bottom of the page.
We will start with the term we call a Company's Financial Strength. This is a Value Line ranking of the financial strength of a company, measured on a scale from A++ (highest) to C (lowest) in nine steps. B+ is average. The ranks are based on the judgment of our senior staff members, and they are somewhat similar to bond ratings. The strength of a company's balance sheet is the most important factor in determining the Financial Strength rank. Some of the factors we evaluate are the amount of debt and equity on a company's balance sheet, the level of a company's earnings, its annual interest charges, the company's historical growth record, and the company's size.
The next item is an index of a Stock's Price Stability. It is based on the ranking of the standard deviation of weekly percent changes in the price of a stock over the past five years. The lower the standard deviation, the more stable the stock. The higher the standard deviation, the more volatile the stock. The most stable stocks, those in the top 5%, have a Price Stability Index of 100. The next 5% are ranked 95, and so on down to 5. Stocks with ranks of 50 and 55 are average.
Then we have Price Growth Persistence. This is a measure of the relative consistency of stock price growth. Using each year of the past 10 (or fewer if 10 are not available), a count is made of the number of subsequent years in which the relative price of the stock was higher than it was in the base period. The sum of these counts is the basis for the index. The Growth Persistence index ranges from 100 (highest) to 5 (lowest). As with Price Stability, scores of 50 and 55 are average.
Finally, there is Earnings Predictability. This is a measurement of the reliability of an earnings forecast. Predictability is based on the stability of year-to-year quarterly earnings comparisons. The earnings stability is calculated from the standard deviation of the percent changes in quarterly earnings over a 10-year period. The very highest score, that given the companies with the most stable and predictable earnings, is 100, the lowest 5.
Now for the Footnotes that appear at the very bottom of a Value Line company page. The information contained here is actually very important since it includes some vital data. We typically show the company's fiscal year end, if it is other than December 31st. Then we indicate whether we are reporting a company's basic or diluted earnings per share. Non-recurring gains or losses per share are shown next. These are the items that our analysts have excluded from the earnings per share data included in the body of the page. And we also show dates for the next expected earnings report and for the next dividend payment. Other information is included if the Value Line analyst thinks it is important. We will, for example, show intangible assets that are included in a company's balance sheet, if the amount is significant, and we will indicate whether or not our data has been adjusted for recent or pending stock splits or stock dividends.
We have now completed the discussion of the items on a Value Line company page. If you want additional information, we suggest that you go the Education section of our Web site, where we have a number of guides. If you have specific questions, you can ask then in the Ask Value Line section of our Home page.
Thanks for joining us. Please be sure to visit www.valueline.com every day to see our most recent comments about the stock market and about developments on specific stocks.
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