Formula

Book Value = Assets − Liabilities

Example

If a company has $1 billion in assets and $700 million in liabilities, its book value is $300 million. Think of it as the company’s ‘accounting’ value.

Example

If a company declares a dividend of $2 per share, someone who owns 100 shares receives $200. DPS is usually quoted on an annual basis when comparing companies, although dividends may actually be paid quarterly, semi-annually, etc.

Why it matters

DPS tells you the actual cash dividend you’re receiving per share. It’s also used to calculate dividend yield:

Dividend Yield = Dividends Per Share ÷ Share Price

If a company pays $2 per share each year and the stock trades at $40, that is a 5% dividend yield. If you bought $10,000 worth of the stock at that price, you’d receive roughly $500 per year in dividends, assuming the dividend stays unchanged.

Formula

EPS = Net Income ÷ Shares Outstanding

Example

If a company makes $100 million in profit and has 50 million shares, its EPS is $2.00.

If you buy the stock before the ex-dividend date, you will receive the dividend. If you buy it on or after the ex-dividend date, you will not receive that dividend.

Example

Company ABC announces a $1 dividend with an ex-dividend date of October 10.

• Buy on October 9 → You receive the dividend
• Buy on October 10 → You don’t receive the dividend

Example

A company owns a building recorded at $100 million. If the building’s value falls significantly and the company determines it’s now worth only $70 million, it may record a $30 million impairment expense. This reduces reported profit, as an expense is essentially incurred.

Why it matters

An impairment can cause a large drop in reported earnings without the company actually paying out $30 million in cash at that time.

If a company has $100 million in sales and $40 million in gross profit, its gross margin is 40%. For every $1 the company sells, 40¢ is gross profit.

Types of margin

• Gross margin: how much of sales remains after the direct cost of producing the goods or services.
• Operating margin: how much of sales remains after operating expenses such as salaries, rent and marketing.
• Net margin: how much of sales ultimately becomes net profit after all expenses, interest and taxes.

Example

A company has $100 of sales:

• Gross profit = $40 → 40% gross margin
• Operating profit = $20 → 20% operating margin
• Net profit = $12 → 12% net margin

Margins progressively show how much of the company’s sales turns into profit as you move down the income statement.

Why it matters

Margins help investors understand how profitable a business is and whether its profitability is improving or deteriorating over time. If net margin increases from 10% to 15%, the company is making more profit from each dollar of sales.

Example

A fund owns $100 million of investments and has $5 million in liabilities. Its NAV is $95 million. If there are 10 million shares in the fund, the NAV per share is $9.50.

Think of NAV as

“What is everything this fund owns worth after paying what it owes?”

Note

It is very possible for a fund that is trading on an exchange to have a NAV per share that is different from its listed or trading price.

For example, a company might:

• sell a property and make a $50 million gain;
• pay a $20 million restructuring cost;
• settle a lawsuit for $30 million.

These can significantly affect reported earnings for one period.

Why it matters

If you’re trying to understand how the company is performing normally, you don’t want a one-off event to distort your view.

• Reported profit: $150 million
• One-off gain: $50 million
• Underlying profit: roughly $100 million

So an investor shouldn’t automatically assume the company will make $150 million again next year.

Example

If a company’s book value is $20 per share and its stock trades at $30, its P/B is 1.5x. That means investors are paying $1.50 for every $1 of book value.

Why it matters

P/B can be particularly useful when analysing banks and other financial companies, where the value of assets and liabilities is especially important.

Example

If a company earns $2 per share and its stock trades at $20, its P/E is 10x. In other words, investors are paying $10 for every $1 the company earns.

Why it matters

A higher P/E generally means investors have higher expectations for the company’s future growth. A lower P/E can mean the stock is cheaper, but it can also signal that investors expect weaker growth or see more risk.

Example

Imagine it’s September 2026 and a company has reported Q3 2026, Q2 2026, Q1 2026 and Q4 2025. The trailing 12-month period would use those four quarters.

Why it matters

TTM gives you a more current picture of the company’s performance than simply looking at its last completed financial year. You’ll often see TTM P/E, TTM EPS or TTM revenue.

Think of it like buying a house. Saying a house costs $1 million doesn’t tell you whether it’s expensive. You need to compare that price with the size, location, condition and other characteristics of the house.

It’s the same with stocks. A $50 stock isn’t necessarily more expensive than a $10 stock. You need to look at the value of the company relative to its fundamentals.

Two common measures

• P/E: If a company earns $5 per share and its stock trades at $100, it has a P/E of 20x. You are effectively paying $20 for every $1 of annual earnings.
• P/B: If a company’s book value is $50 per share and the stock trades at $100, it has a P/B of 2x. You are paying $2 for every $1 of book value.

What does “high valuation” mean?

It generally means investors are paying a relatively high price for the company’s earnings, assets or other financial measures. If Company A trades at a P/E of 10x and Company B at 25x, Company B has the higher valuation on a P/E basis.

This doesn’t automatically mean Company B is too expensive. Investors may be willing to pay a higher valuation because they expect faster growth, higher profitability or lower risk. Likewise, a stock with a low valuation isn’t automatically a bargain. The market may be pricing in weak growth, declining profits or greater risk.

In simple terms

Valuation = the price investors are willing to pay for what a company produces or owns.

“High valuation” is relative. Compare a company’s valuation with its own history, similar companies or the broader market to judge whether it actually looks expensive.