The next line, beta, measures stock price volatility relative to the overall stock market. We use the S&P 500 as a proxy for the market and we automatically define it's Beta as being 1.00. A higher beta indicates that a stock is more volatile while a lower beta indicates more stability. A stock with a Beta of 0.90 would, on average, be expected to rise or fall only 90% as much as the market. So if the market dropped 1.0%, such a stock might rise or fall .90% On the other hand, a stock with a Beta of 1.10 would, on average, rise or fall 10% more than the market (i.e., a 1.0% market move, either way, should spur a 1.1% move for the stock.

Price-to-Sales is generally used to evaluate companies that don't have earnings and don't pay dividends. For these companies, you may consider that high multiples of sales and high growth rates suggest optimistic future earnings expectations on the part of investors. Also, earnings can vary widely from one year to the next due to temporary issues, such as reserves or gains and losses on asset divestitures. Sales trends tend to be less volatile. Hence the Price-to-Sales ratio can be useful in situations where the P/E is distorted by unusual swings in earnings over the most recent 12-month period.

Price to Book is a theoretical comparison of the vale of the company's stock to the value of the assets it owns (free and clear of debt). Classical financial theory suggests that book value is a proxy for the proceeds that would be realized if the company was to be liquidated by selling all its assets and paying all its debt. For some companies, that may, indeed, be valid. But nowadays, you need to take it with a grain of salt. Assets are valued on the books at the actual prices the company paid to acquire them, minus cumulative depreciation/amortization charges. The idea behind these costs is to gradually reduce the value of the assets to zero over a period of use in which they presumably approach obsolescence. But note: the writeoffs are based on specific accounting formulas that may or may not resemble "real world" progress toward obsolescence. Also, it's not clear that book value is effective in measuring the value of service-oriented companies that are less dependent on traditional brick-and-mortar factories and machinery.

Price to tangible book is similar to price to book, except that we have subtracted the value of intangibles such as goodwill from book value. It is tempting to assume that intangible assets are less valuable than tangible assets. We suggest that you avoid jumping to such a conclusion. Consider a fast food chain such as McDonald's (MCD). Its tangible book value would include the collective amounts it spent to construct and equip company-owned properties. But what about the value of the agreements it holds with its huge and powerful network of franchisees, the true engine of MCD's growth? What about the value of the brand name? These are not the sort of assets that are included in a calculation of tangible book value. But if you were going to attempt to purchase the entire company, you would understand that you would have to pay a price that truly reflects the considerable value of these intangibles. Indeed, some of the most valuable intangibles a company owns may not show up, in any sense, on its books. The sort of intangible assets we described for MCD may never be associated with any number, absent some accounting event. One example of that would be if you were to acquire the company. The difference between what you pay, and the book value of MCD's assets, would appear on your books as your intangible asset. Given these issues, we suggest that Price to Book and Price to Tangible Book are best used in comparison to the Industry.

When measuring a company's operating performance, Cash Flow is an alternative to Net Income. To calculate Net Income, we subtract all expenses from revenues. That sounds simple, but in truth, measuring expenses can raise interesting questions. Suppose a manufacturing firm spends $100 million to build a factory that will help it create salable products for a period of ten years. Looking strictly at cash outlays, we would recognize factory construction expenses of $100 million in Year 1, and zero in each of years 2-10. This would suggest one unusually poor year for profits, followed by nine very good ones. Accountants recognize that this isn't realistic. The preferred practice is to match revenues as closely as possible to the expenses incurred to generate the Revenues. In our example, we assume that the $100 million factory generates 10 years worth of Revenues. So we recognize one-tenth of the $100 million outlay in each of those 10 years. This one-tenth charge is known as depreciation. (Amortization is a similar annual charge for a different sort of one-time expenditure that is matched against more than one year's worth of sales.)

How should an investor assess all of this? The revenue/expense matching practices of the accountants is a reasonable way to measure a company's economic success or failure. So you should pay heed to the traditional Net Income (or Earnings) and Earnings Per share figures as reported by the companies. But this number does not tell you how much cash the company generates year in and year out. If you want to know how much the company can afford to pay in dividends or use for other investments, you would look to a figure known as Cash Flow, which is calculated by adding non-cash depreciation and amortization charges back to Net Income.

But Cash Flow alone doesn't necessarily give you the full story. Even if you'd rather study cash flows than economic performance, you still need to somehow account for the $100 million our hypothetical company spent to build the factory. Free cash flow looks at the cash the company's operations actually generated in a given year, and subtracts important "non-operating" cash outlays; capital spending and dividend payments. Accordingly, Free Cash Flow is the purest measure of a company's capacity to generate cash.

When analyzing stocks, you need to examine cash flow and free cash flow. Cash Flow is a less pure number, but it is less susceptible to wide year-to-year swings as capital programs periodically build up and wind down. Examining the Price to Cash Flow and Price to Free Cash Flow ratios presented here, we confirm our impression that MCD is more richly valued than the Restaurant group, but that the industry as a whole may be undervalued.

The final line on this table is an especially important one to check. This item, which shows the percent of shares owned by institutions, helps you see whether demand on the part of this influential investor group is more likely to be pent-up or satiated. Institutions are important segment of the investment community because of their expertise and size. The Institutional Ownership table on the Market Guide Performance Report shows you whether these investors have been buying or selling the stock.