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Valuation Ratios

Price/Earnings Projected
Price/projected earnings for a stock is the ratio of the company's most recent month-end share price to the company's estimated earnings per share (EPS) for the current fiscal year. If a third-party estimate for the current year EPS is not available, Morningstar will calculate an internal estimate based on the most recently reported EPS and average historical earnings growth rates. Price/projected earnings is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the earnings yields (E/P) of all the stocks in the portfolio and then taking the reciprocal of the result.

Benefits
The P/E ratio relates the price of the stock to the per-share earnings of the company. A high P/E generally indicates that the market will pay more to obtain the company because it has confidence in the company's ability to increase its earnings. Conversely, a low P/E indicates that the market has less confidence that the company's earnings will increase, and therefore will not pay as much for its stock. In most cases high average P/E ratio indicates a manager has paid a premium for stocks that have a high potential for increased earnings. If the average P/E ratio is low, the manager may believe that the stocks have an overlooked or undervalued potential for appreciation.

Origin
Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.

Price/Book Projected
Price/book (projected) for a stock is the ratio of the company's most recent month-end share price to the company's estimated book value per share (BPS) for the current fiscal year. Book value is the total assets of a company, less total liabilities. Morningstar calculates internal estimates for the current year BPS based on the most recently reported BPS and average historical book value growth rates. Price/book (projected) is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the book value yields (B/P) of all the stocks in the portfolio and then taking the reciprocal of the result.

Benefits
The price/book ratio can tell investors approximately how much they're paying for a company's tangible assets, based on accounting valuations. Assets are usually valued on a company's books at the historical acquisition cost, less any depreciation. The book value may be different than the current market value for those assets and the stock price may reflect that. Also, book value often excludes intangible assets, such as patents, trademarks, and brand names; therefore, companies with a lot of intangible assets often have larger price/book ratios. Value investors frequently look for companies or portfolios that have low price/book ratios.

Price/Sales Projected
Price/sales (projected) for a stock is the ratio of the company's most recent month-end share price to the company's estimated sales per share (SPS) for the current fiscal year. Morningstar calculates internal estimates for the current year SPS based on the most recently reported SPS and average historical sales growth rates. Price/sales (projected) is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the sales yields (S/P) of all the stocks in the portfolio and then taking the reciprocal of the result.

Benefits
Price/sales is a valuation measure that indicates how much an investor is paying for a revenue stream. Because revenue measures are less subject to accounting standards than many financial statement figures, this valuation measure is more useful than many others in comparing stocks from different countries. Still, without information about the profit margins of the underlying stocks, this statistic is of limited use. This is less of a problem for specialty portfolios, since margins across specific industries are more consistent.

Price/Cash Flow – Projected
Price/cash flow (projected) for a stock is the ratio of the company's most recent month-end share price to the company's estimated cash flow per share (CPS) for the current fiscal year. Cash flow measures the ability of a business to generate cash and it acts as a gauge of liquidity and solvency. Morningstar calculates internal estimates for the current year CPS based on the most recently reported CPS and average historical cash flow growth rates. Price/cash flow (projected) is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the cash flow yields (C/P) of all the stocks in the portfolio and then taking the reciprocal of the result.

Benefit
The price/cash flow ratio can tell investors approximately how much they're paying for a dollar of cash flow. Because of differences in accounting standards across the globe, price/earnings ratios are not always reasonable for comparing companies from different countries. Price/Cash Flow attempts to provide a consistent standard of comparison.

Dividend Yield – Projected
Dividend yield (projected) for a stock is the percentage of its stock price that a company is projected to pay out as dividends. It is calculated by dividing estimated annual dividends per share (DPS) for the current fiscal year by the company's most recent month-end stock price. Morningstar calculates internal estimates for the current year DPS based on the most recently reported DPS and average historical dividend growth rates. This is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the dividend yields of all the stocks in the portfolio.

Benefit
When companies make a profit, they can either share that profit with shareholders in the form of a dividend, or they can reinvest that money into the business. High dividend yields are often indicative of value stocks. Growth stocks tend to reinvest profits back into the company and therefore have low or no dividends.

Long Term Projected Earnings Growth
The long-term projected earnings growth rate for a stock is the average of the available third-party analysts' estimates for three- to five-year EPS growth. Long-term projected earnings growth is one of the five growth factors used to calculate the Morningstar Style Box. For portfolios, this data point is the share-weighted average of the projected earnings growth estimates for all the stocks in the portfolio. (The share-weighted average is more accurate than an asset-weighted average for this type of calculation.)

Benefits
Investors and institutions trade stocks based on their expectations for how stocks will perform in the future. The long-term projected earnings growth rate summarizes stock analysts' estimates for how quickly a company will grow its earnings per share. This measure helps Morningstar determine how strong the overall growth-orientation is for a stock or portfolio.

Historical Earnings Growth
The historical earnings growth rate for a stock is a measure of how the stock's earnings per share (EPS) has grown over the last five years. Morningstar uses EPS from continuing operations to calculate this growth rate. Historical earnings growth is one of the five growth factors used to calculate the Morningstar Style Box. For portfolios, this data point is the share-weighted collective earnings growth for all stocks in the current portfolio. (The share-weighted average is more accurate than an asset-weighted average for this type of calculation.)

Benefits
The historical earnings growth rate can tell investors how quickly a company's profits are growing. A company may increase its earnings per share by increasing its sales, decreasing its costs, or reducing the number of shares outstanding in the marketplace. The historical earnings growth rate helps Morningstar determine how strong the overall growth-orientation is for a stock or portfolio.

Book Value Growth
The book value growth rate for a stock is a measure of how the stock's book value per share (BVPS) has grown over the last five years. Book value growth is one of the five growth factors used to calculate the Morningstar Style Box. For portfolios, this data point is the share-weighted collective book value growth for all stocks in the current portfolio. (The share-weighted average is more accurate than an asset-weighted average for this type of calculation.)

Benefits
Book value growth tells an investor how quickly a company is building its asset base. A company may increase its book value by buying more assets or decreasing its liabilities. The book value growth rate helps Morningstar determine how strong the overall growth-orientation is for a stock or portfolio.

Sales Growth
The sales growth rate for a stock is a measure of how the stock's sales per share (SPS) has grown over the last five years. Sales growth is one of the five growth factors used to calculate the Morningstar Style Box. For portfolios, this data point is the share-weighted collective sales growth for all stocks in the current portfolio. (The share-weighted average is more accurate than an asset-weighted average for this type of calculation.)

Benefits
Sales growth tells an investor how quickly a company is increasing its revenues. The sales growth rate helps Morningstar determine how strong the overall growth-orientation is for a stock or portfolio.

Cash Flow Growth
The cash flow growth rate for a stock is a measure of how the stock's cash flow per share (CFPS) has grown over the last three to five years. Cash flow growth is one of the five growth factors used to calculate the Morningstar Style Box. For portfolios, this data point is the share-weighted collective cash flow growth for all stocks in the current portfolio. (The share-weighted average is more accurate than an asset-weighted average for this type of calculation.)

Benefits
Cash flow growth tells an investor how quickly a company is generating inflows of cash from operations. The cash flow growth rate helps Morningstar determine how strong the overall growth-orientation is for a stock or portfolio.