Stock Selection Guide – Sections 2-5

 

 

 

Line A: % Pre-Tax Profit on Sales

 

You will have to calculate this percentage for EACH YEAR!

 

% Pre-Tax Profit on Sales = Net Income Before Sales Sales

x 100

 

 

 

You will have to calculate it yourself!

 

1)     Take income tax rate (Line 15) and express it as a decimal

2)     Subtract that figure from 1.00

3)     Take Net Profit (Line 14) and divide answer by 2

4)     Divide Sales (Line 11) by Step 3, round to the tenth place

 

Line B: % Earned on Equity

 

% Earned on Equity = Equity (same as Net Worth)

Book Value (Line 6)

 

 

Col A-C:

All information is available in ValueLineâ

Make sure to enter years in increasing order!

 

Col D-E : High /Lo Earning Ratio

Not given by ValueLineâ but are easily computed by doing the below calculations:

 

Hi P/E Ratio = Hi Price (Column A) P/E Ratio (Column C)
Low P/E Ratio = Low Price (Column B) P/E Ratio (Column C)

 

Col F: Dividends Per Share

Col4 of ValueLineâ

 

Col G: % Payout

Use ValueLineâ “% of All Dividends to Net Profits”

 

Col H: % Hi Yield

 

% Hi Yield =	Dividends Per Share	x 100
	Corresp. Year’s Low Price

 

Row 6: Add up the figures for each of the 5 years, enter the totals

Row 7: Divide these totals by 5 for five-yr averages

Row 8: Average Price Earning Ratio: (Avg Low P/E) + (Avg Hi P/E)

2

Row 9: Current Price Earnings Ratio =	Current Price
	Current Earnings Per Share (Use the next year’s if in the latter part of the Fiscal Year)

 

 

Part A: High Price – Next 5 Years

 

·       Average High P/E is taken from Section 3, Line 7, Column D

·       Estimated hi-earnings per share for 5 years calculated by

1)     Seeing where EPS trend line crosses the projected year mark

2)     Using sales estimates

o       Calculated by:

A.     Read chart to see what projected sales will be for current year

B.     Find Pre-tax margin (Line A of Section 2) –Determine a percentage that is greater than 5year average, but less than current years. Use this number as the percentage of the projected sales (See Step A).

C.     Subtract current income tax rate (Line 15) from 100. This number will be the percentage that you will take of the figure you determined in Step B (Use this number as your after-tax income)

D.     Divide C figure by # of shares (left lower corner of ValueLineâ). This determines estimated earnings per share five years in the future.

 

Part B: Low Price Next 5 Years

 

a)      Avg Low P/E: See Section 3, Estimated Low Earnings Per Share = [Avg low P/E for last 5 years (Sec 3, Col E, Line 7)] x [Current Years Earning Per Share]

b)     Avg. Low Price of Last Five Years See Sec 3

c)      Recent Severe Market Low Price Use lowest of any of past 5 years

 

 

d)     Price Dividend = Present Dividend

Highest Yield Fig (Sec 3, Col H)

 

Part C: Zoning

 

High Forecast Price –See answer for Sec 4, Part A

Low Forecast Price - See answer for Sec 4, Part B

 

·       For 1^st Lower 1/3, use “Low Forecast Price”

·       To get the next number in the row, add the range answer you obtained in Line 1 of Zoning Section

·       Find the current price and then determine where it fits in these categories

 

Part D: Upside/Downside Ratio

 

High price is the 2^nd number in the Upper 1/3 range

Low price is the 1^st number in the Lower 1/3 range

 

Part E: Price Target

Use High Forecast and Present Market Price—plug into the formula and computer

 

 

Part A: Present Full Year’s Dividend – See Section 3, Col F

 

Part B: Average Yield Over Next Five Years

·       Average Earning’s Per Share for Next 5 Yrs: Follow EPS Trend Line

·       Average Percent Payout – See Sec 3, Col G, Line 7

 

Part C: Estimated Avg Annual Return

·       5 Year Appreciation Potential (Sec 4, Part E), the percentage will be the 5-year potential divided by 5

·       Average Yield: Answer for Sec 5, Part B

·       Average Total Annual Return: Add 5 Year + Avg. Yield