A Buy Back is when a company uses spare cash to buy its own shares on the open market. I do not like buy backs and never have. I do not see that it particularly helps the shareholders of the company. I do not think that company's buy backs buy shares at good prices. I think that this does not enhance the value of a company and I wish that companies would not do this.
Here is an article on why Buy Backs are not a greatidea. He hits are keys points about how this can destroy shareholder value and why it is not necessarily the best use of a company's money.
There is also an article by The Wall Street Journal. It talks about why Best Buy's stock Buy Backs has not always been the best idea. This journalist thought paying down Best Buy's debt would be a much better idea.
You have to wonder if the companies are doing Buy Backs more because it seems to be currently fashionable rather than because it is a good idea.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Wednesday, March 27, 2013
Monday, March 25, 2013
Kiva
I have now for several years been loaning money via Kiva . I heard about this organization when I read Bill Clinton's book called Giving. This was a great book and it why I decided to loan money through Kiva.
The basic concept is that you loan money to someone somewhere in the world. You do that through micro credit organizations that advertise people who want loans on Kiva's site. You do not get any interest for your loan, but the micro credit organization charges interest on the loan, usually anywhere from 5% to 20% as I understand it.
I have made some 68 loans via Kiva and only one loan was not fully repaid. I got $22.38 back rather than $25 as the lender did not make the last two payments on the loan. I have been loan new money and re-loaning money paid back.
Kiva asks for 15% donation with each loan, but I must admit I feel that is too much for money re-loaned. So, I give an extra 15% on new money I put into Kiva, but not generally on re-loaned money. I understand that Kiva has expenses and I sometimes give them some extra money when I re-loan money. However, if I give 15% of all money re-loaned it would mean that I could re-loan money only 7.5 times before it disappears into Kiva.
When I loan money, I like to read the story on why people want to borrow money. I also check out the field partner, or the micro credit organization that will handle the loan. They have a Field Partner Risk Rating. This rating is based on governance of the micro credit organization and on whether or not they keep proper accounting books. I like the micro credit organizations I deal though to have a reasonable risk rating.
I also check the micro credit organization's delinquency rate. You should note that you may not always get back what you loan because of currency exchange. Being in Canada, you should know that Kiva runs on US$, so when you loan $25 it is $25 in US$.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
The basic concept is that you loan money to someone somewhere in the world. You do that through micro credit organizations that advertise people who want loans on Kiva's site. You do not get any interest for your loan, but the micro credit organization charges interest on the loan, usually anywhere from 5% to 20% as I understand it.
I have made some 68 loans via Kiva and only one loan was not fully repaid. I got $22.38 back rather than $25 as the lender did not make the last two payments on the loan. I have been loan new money and re-loaning money paid back.
Kiva asks for 15% donation with each loan, but I must admit I feel that is too much for money re-loaned. So, I give an extra 15% on new money I put into Kiva, but not generally on re-loaned money. I understand that Kiva has expenses and I sometimes give them some extra money when I re-loan money. However, if I give 15% of all money re-loaned it would mean that I could re-loan money only 7.5 times before it disappears into Kiva.
When I loan money, I like to read the story on why people want to borrow money. I also check out the field partner, or the micro credit organization that will handle the loan. They have a Field Partner Risk Rating. This rating is based on governance of the micro credit organization and on whether or not they keep proper accounting books. I like the micro credit organizations I deal though to have a reasonable risk rating.
I also check the micro credit organization's delinquency rate. You should note that you may not always get back what you loan because of currency exchange. Being in Canada, you should know that Kiva runs on US$, so when you loan $25 it is $25 in US$.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Wednesday, March 20, 2013
Stock Price Ratios
Using Stock Price Ratios is a method to try to figure out how reasonable a stock price is. My favourites are Price/Earnings per Share Ratio (P/E Ratio), Price/Graham Price Ratio (P/GP Ratio) and Price/Book Value per Share Ratio (P/B Ratio).
The most common ratio is probably the P/E Ratio. I generally use the current stock price and the consensus EPS estimate for the current year. I compare this to the 5 year low, median and high median P/E Ratios. The ratio is sometimes called the Forward P/E Ratio.
There is also a Trailing P/E Ratio. This ratio uses the current stock price and last year’s EPS. To do a comparison, you need to compare this ratio with the 5 year low, median and high median Trailing P/E Ratios.
The P/B Ratio is also a common ratio to look at. I look at the 10 year median P/B Ratio. The current one uses the latest Book Value per Share and the current stock price. If the P/B Ratio is 80% of the 10 year median ratio, it shows that the current stock price is cheap. If the current P/B Ratio is around the same as the 10 year median P/B Ratio, then the current stock price is reasonable.
I have previously written about the Graham Price . This calculation is trying to come up with what would be a good price to pay for a stock. It uses both the EPS and Book Value in the calculation. So basically, a P/GP Ratio of 1.00 or below would be ideal. However, some stocks you would like to buy never get to a 1.00 ratio.
What I do is look at the 10 year low, median and high median P/GP Ratios and compare this to the current P/GP Ratio I calculated. Basically, I want a current P/GP Ratio that is below the 10 year high median P/GP Ratio. A relatively cheap stock would be one where the current P/GP Ratio is at or lower than the 10 year low median P/GP Ratio.
There could be reasons why you do not think one of the above Stock Price Ratios gives a valid picture of what would be a reasonable stock price. Say, because of new accounting rules, the book value on a stock is significantly raised or lower. Using the P/B Ratio in this instance may not give you any valid hook on what is a relatively reasonable stock price. So there are other Stock Price Ratios you can use.
Another common Stock Price Ratio is the Price/Cash Flow per Share Ratio (P/CF Ratio). Here you can use a 5 year median P/CF Ratio and compare it to the P/CF Ratio using the current stock price and the CFPS covering the last 12 months.
The Price/Sales per Share Ratio (P/S Ratio) can also be used in the same manner. You can compare the 5 year median P/S Ratio to a P/S Ratio based either on Sales or Revenue estimates for the year or Sales or Revenue earned over the past 12 months.
If you are dealing with a REIT or a Utility company, you might want to use the Price/Adjusted Funds from Operations Ratio (P/AFFO Ratio), Price/Funds from Operations Ratio (P/FFO Ratio) or Price/Distributable Income Ratio (P/DI Ratio). The problem with these ratios is that how to calculated AFFO, FFO or DI has changed over time. Also, not everyone calculates these values in the same manner. To be at all useful, you should get your AFFO, FFO or DI values from the same place. Sometimes a company will include these values in with their section called Management Discussion and Analysis.
To do a comparison I look at the 5 year low, median and high median P/AFFO Ratio, P/FFO Ratio or P/DI Ratio and compare it to the current ratios based on current stock price and analysts' consensus values for AFFO, FFO or DI.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
The most common ratio is probably the P/E Ratio. I generally use the current stock price and the consensus EPS estimate for the current year. I compare this to the 5 year low, median and high median P/E Ratios. The ratio is sometimes called the Forward P/E Ratio.
There is also a Trailing P/E Ratio. This ratio uses the current stock price and last year’s EPS. To do a comparison, you need to compare this ratio with the 5 year low, median and high median Trailing P/E Ratios.
The P/B Ratio is also a common ratio to look at. I look at the 10 year median P/B Ratio. The current one uses the latest Book Value per Share and the current stock price. If the P/B Ratio is 80% of the 10 year median ratio, it shows that the current stock price is cheap. If the current P/B Ratio is around the same as the 10 year median P/B Ratio, then the current stock price is reasonable.
I have previously written about the Graham Price . This calculation is trying to come up with what would be a good price to pay for a stock. It uses both the EPS and Book Value in the calculation. So basically, a P/GP Ratio of 1.00 or below would be ideal. However, some stocks you would like to buy never get to a 1.00 ratio.
What I do is look at the 10 year low, median and high median P/GP Ratios and compare this to the current P/GP Ratio I calculated. Basically, I want a current P/GP Ratio that is below the 10 year high median P/GP Ratio. A relatively cheap stock would be one where the current P/GP Ratio is at or lower than the 10 year low median P/GP Ratio.
There could be reasons why you do not think one of the above Stock Price Ratios gives a valid picture of what would be a reasonable stock price. Say, because of new accounting rules, the book value on a stock is significantly raised or lower. Using the P/B Ratio in this instance may not give you any valid hook on what is a relatively reasonable stock price. So there are other Stock Price Ratios you can use.
Another common Stock Price Ratio is the Price/Cash Flow per Share Ratio (P/CF Ratio). Here you can use a 5 year median P/CF Ratio and compare it to the P/CF Ratio using the current stock price and the CFPS covering the last 12 months.
The Price/Sales per Share Ratio (P/S Ratio) can also be used in the same manner. You can compare the 5 year median P/S Ratio to a P/S Ratio based either on Sales or Revenue estimates for the year or Sales or Revenue earned over the past 12 months.
If you are dealing with a REIT or a Utility company, you might want to use the Price/Adjusted Funds from Operations Ratio (P/AFFO Ratio), Price/Funds from Operations Ratio (P/FFO Ratio) or Price/Distributable Income Ratio (P/DI Ratio). The problem with these ratios is that how to calculated AFFO, FFO or DI has changed over time. Also, not everyone calculates these values in the same manner. To be at all useful, you should get your AFFO, FFO or DI values from the same place. Sometimes a company will include these values in with their section called Management Discussion and Analysis.
To do a comparison I look at the 5 year low, median and high median P/AFFO Ratio, P/FFO Ratio or P/DI Ratio and compare it to the current ratios based on current stock price and analysts' consensus values for AFFO, FFO or DI.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Monday, March 18, 2013
Capitalism and Socialism
I am a capitalist. It is capitalism that makes my current living possible. I have always lived a bit below my means. I starting buying stocks a lot time ago and now I am living off the dividends my stocks earn.
Because I believe in the benefits of capitalism is why I loan money via the micro loaning site Kiva.org. These are small business loans and they promote capitalism. That is people earning their living by selling something. Capitalism after all is just people earning their living by working for themselves or someone else.
Capitalism goes very well with other things I believe in such as democracy, rule of law, freedom of speech and individual freedom of action. It is capitalism that makes my current living possible. Capitalism, is not a political system, it is a market system. It also needs rules set by governments to work properly. For example, it works much better when there are standards in such things as weights and measures. Of course, all market systems work better with such standards. For example, the Romans brought in such standards to facilitate trade. Of course, too many rules can strangle any market system.
I do not believe in socialism as I do not believe that it works. Socialism talks about redistributing wealth. However, you must create wealth to redistribute it. Socialisms flaw is that is that it only redistributes wealth it does not make any wealth. Talk socialism to its logical conclusion and everyone ends up poor.
I do not believe in perfecting mankind as I think that mankind is just fine. Perfecting mankind was the main aim of communism and it talk of creating a new soviet man. Humans are messy creatures; they are combinations of good and bad. Mostly people fit into very grey areas of good and bad. If we were perfect, we would be more like machines, and I cannot see any good in this.
I believe we need some social programs. We do need a safety net for people who are not currently able to make a living. We do not need a permanent welfare roll. I do not think that our current system of welfare works. There is no incentive for people to get off welfare. Every $1 they make, welfare takes back a $1. What we need to do is to offer an extra $1 for $1 welfare recipients make. (However, these rules are changing.)
We need to help people earn a decent wage, so they do not need welfare and we can go on to help others. Currently, we have permanent welfare recipients and others who live on the street that get no help whatsoever. Does this make any sense at all?
Even Nordic countries which have managed socialism better than anyone, have voted in more right-wing governments every once in a while to moderate their socialism and bring their finances into line. Places like Sweden have recently lowered taxes and have brought in school voucher systems.
It is said that socialism last as long as there is other people's money to spend. But the same is said of democracy. Notice that recently everyone talks about how they deserve their entitlements (of health care and pensions especially), but no one wants to pay for it. It maybe that we are trying to test out this statement.
They are now going after those who they feel are rich and could pay for this stuff. Prior to this government debt was used and thought of as free money. However, now it is realized that government debt is not free money. Neither is going to work. If people want good health care and pensions, they are going to have to pay for it.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Because I believe in the benefits of capitalism is why I loan money via the micro loaning site Kiva.org. These are small business loans and they promote capitalism. That is people earning their living by selling something. Capitalism after all is just people earning their living by working for themselves or someone else.
Capitalism goes very well with other things I believe in such as democracy, rule of law, freedom of speech and individual freedom of action. It is capitalism that makes my current living possible. Capitalism, is not a political system, it is a market system. It also needs rules set by governments to work properly. For example, it works much better when there are standards in such things as weights and measures. Of course, all market systems work better with such standards. For example, the Romans brought in such standards to facilitate trade. Of course, too many rules can strangle any market system.
I do not believe in socialism as I do not believe that it works. Socialism talks about redistributing wealth. However, you must create wealth to redistribute it. Socialisms flaw is that is that it only redistributes wealth it does not make any wealth. Talk socialism to its logical conclusion and everyone ends up poor.
I do not believe in perfecting mankind as I think that mankind is just fine. Perfecting mankind was the main aim of communism and it talk of creating a new soviet man. Humans are messy creatures; they are combinations of good and bad. Mostly people fit into very grey areas of good and bad. If we were perfect, we would be more like machines, and I cannot see any good in this.
I believe we need some social programs. We do need a safety net for people who are not currently able to make a living. We do not need a permanent welfare roll. I do not think that our current system of welfare works. There is no incentive for people to get off welfare. Every $1 they make, welfare takes back a $1. What we need to do is to offer an extra $1 for $1 welfare recipients make. (However, these rules are changing.)
We need to help people earn a decent wage, so they do not need welfare and we can go on to help others. Currently, we have permanent welfare recipients and others who live on the street that get no help whatsoever. Does this make any sense at all?
Even Nordic countries which have managed socialism better than anyone, have voted in more right-wing governments every once in a while to moderate their socialism and bring their finances into line. Places like Sweden have recently lowered taxes and have brought in school voucher systems.
It is said that socialism last as long as there is other people's money to spend. But the same is said of democracy. Notice that recently everyone talks about how they deserve their entitlements (of health care and pensions especially), but no one wants to pay for it. It maybe that we are trying to test out this statement.
They are now going after those who they feel are rich and could pay for this stuff. Prior to this government debt was used and thought of as free money. However, now it is realized that government debt is not free money. Neither is going to work. If people want good health care and pensions, they are going to have to pay for it.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Wednesday, March 13, 2013
Comprehensive Income
With the change of the accounting rules to IFRS from Canadian GAAP, one of the financial ratios suggested to be used was a ROE based on comprehensive income.
As I understand the accounting change, most of the financial ratios under IFRS present a significantly higher volatility than those computed under pre-changeover Canadian GAAP. Although the effects of IFRS on means and medians of ratios related to the financial condition of companies are not statistically significant, maximum values of several ratios are higher and the minimum values are lower under IFRS.
There is a significant difference in the distribution of values around medians for such ratios as current and quick ratios, debt, alternative-debt and equity ratios, interest coverage, fixed-charge and cash-flow coverage, return on assets (ROA), comprehensive-ROA and price-earnings related ratios. Results of regression analysis confirm the increased volatility of IFRS leverage and profitability ratios.
In general, IFRS does not materially change the cash flow statement when compared to pre-changeover Canadian GAAP.
From a paper I read it was suggested the use of two ratios when analyzing comprehensive income. They were the comprehensive-ROA (return on assets) and the comprehensive-ROE (return on equity). These are an adaptation of the regular ROA/ROE but with the comprehensive income as the numerator.
The paper I read was called The Effects of IFRS on Financial Ratios: Early Evidence in Canada by Michel Blanchette, Francois-Eric Racicot and Jean-Yves Girard. This paper can be found at here. This paper suggests that if there are differences between the ROE on Net Income and Comprehensive Income, it should be investigated. This can be done easily by looking at the financial statements and the calculation of the comprehensive income. This calculation starts with Net Income. See the statement called "Consolidated Statements of Comprehensive Income".
I had read somewhere that if there was a significant difference between the ROE on net income and comprehensive income this would call into question the quality of the net income. It is basically a warning. I cannot find where I read this, but there is a good article on comprehensive income at Credit Institute of Canada.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
As I understand the accounting change, most of the financial ratios under IFRS present a significantly higher volatility than those computed under pre-changeover Canadian GAAP. Although the effects of IFRS on means and medians of ratios related to the financial condition of companies are not statistically significant, maximum values of several ratios are higher and the minimum values are lower under IFRS.
There is a significant difference in the distribution of values around medians for such ratios as current and quick ratios, debt, alternative-debt and equity ratios, interest coverage, fixed-charge and cash-flow coverage, return on assets (ROA), comprehensive-ROA and price-earnings related ratios. Results of regression analysis confirm the increased volatility of IFRS leverage and profitability ratios.
In general, IFRS does not materially change the cash flow statement when compared to pre-changeover Canadian GAAP.
From a paper I read it was suggested the use of two ratios when analyzing comprehensive income. They were the comprehensive-ROA (return on assets) and the comprehensive-ROE (return on equity). These are an adaptation of the regular ROA/ROE but with the comprehensive income as the numerator.
The paper I read was called The Effects of IFRS on Financial Ratios: Early Evidence in Canada by Michel Blanchette, Francois-Eric Racicot and Jean-Yves Girard. This paper can be found at here. This paper suggests that if there are differences between the ROE on Net Income and Comprehensive Income, it should be investigated. This can be done easily by looking at the financial statements and the calculation of the comprehensive income. This calculation starts with Net Income. See the statement called "Consolidated Statements of Comprehensive Income".
I had read somewhere that if there was a significant difference between the ROE on net income and comprehensive income this would call into question the quality of the net income. It is basically a warning. I cannot find where I read this, but there is a good article on comprehensive income at Credit Institute of Canada.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Monday, March 11, 2013
Women Directors
TD Waterhouse video for this weekend took a look at women's progress in the board rooms in Canada. You can watch the video here. This is not the first time that this subject has come up. There have been a number of studies that show that companies with women directors perform better than companies without women directors.
There is a Bloomberg article article dated in July 2012 that talks about this very subject. It also goes on to say those companies with women on board tend to have better debt ratios and pay off debt sooner. An article by Mediamorphis on Word Press talks about women directors in Canada in Media companies.
There was a study published by Credit Suisse on good performance of companies with women as board members. See their write-up about this study here. See the study paper here.
For Canada and USA, if more diversity with women is beneficial, should we not also press for other diversity also? You look at the pictures of directors and instead of see all white men, now you see also some white women. What about diversity to include Asian, blacks and Indians also?
The companies I am reviewing this week, I have looked at the number of women on boards.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
There is a Bloomberg article article dated in July 2012 that talks about this very subject. It also goes on to say those companies with women on board tend to have better debt ratios and pay off debt sooner. An article by Mediamorphis on Word Press talks about women directors in Canada in Media companies.
There was a study published by Credit Suisse on good performance of companies with women as board members. See their write-up about this study here. See the study paper here.
For Canada and USA, if more diversity with women is beneficial, should we not also press for other diversity also? You look at the pictures of directors and instead of see all white men, now you see also some white women. What about diversity to include Asian, blacks and Indians also?
The companies I am reviewing this week, I have looked at the number of women on boards.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Wednesday, March 6, 2013
Pain and Pleasure in Trading
This Is Your Brain on Stocks article is interesting.
It is not easy being an investor. The value of your portfolio can go through big gyrations which really has nothing to do with the profitability of your investments or the soundness of your portfolio. The markets are more affected by how investors feel on any particular day. There is also a herd mentality going on. This seems to be especially prevalent amount mutual funds managers.
It certainly seems that some people can get very irrational about the stock market. Some people seem to be more sensitive to fear and greed when dealing with the stock market. There have been lots of studies that show we hate lowing more than we love winning. It is called loss aversion and Wikipedia has an article on this subject. It is all quite interesting.
I must admit, that when the markets go crazy, I just stop looking at them and at my portfolio. The other thing is that we will probably get one more serious market bear before we get out of the current secular bear market we are in.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
It is not easy being an investor. The value of your portfolio can go through big gyrations which really has nothing to do with the profitability of your investments or the soundness of your portfolio. The markets are more affected by how investors feel on any particular day. There is also a herd mentality going on. This seems to be especially prevalent amount mutual funds managers.
It certainly seems that some people can get very irrational about the stock market. Some people seem to be more sensitive to fear and greed when dealing with the stock market. There have been lots of studies that show we hate lowing more than we love winning. It is called loss aversion and Wikipedia has an article on this subject. It is all quite interesting.
I must admit, that when the markets go crazy, I just stop looking at them and at my portfolio. The other thing is that we will probably get one more serious market bear before we get out of the current secular bear market we are in.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
Monday, March 4, 2013
FFO and AFFO
What these terms mean is Funds from Operations (FFO) and Adjusted Funds from Operations. These are currently mostly used with REITs. They were also used for Income Trust companies. They seem to be used more and more and some analysts are now using them when looking at utilities companies. This is especially true of the AFFO financial calculation.
For definitions of these terms, go to Investopedia for the definition on FFO and AFFO. Also, the Blogger Thicken by Wallet did a good review of FFO and AFFO financial calculations. This entry is a bit old, but it is still relevant.
A problem is that different analysts can calculate these values differently. So it is a good idea to go to the same source to get the values for a particular stock you are investigating.
The FFO has been around a much longer time, but its calculation has changed over the years. This value actually started as a value call Distributable Income or some similar name. Currently a lot of analysts are now switching to AFFO as they feel it is a better financial measurement.
A common use for this financial measurement, besides looking at its growth, is to look at a Dividend Payout Ratio. You get a Dividend Payout Ratio by dividing the dividend by the FFO or AFFO value. This is a percentage of payout and good DPR re FFO and AFFO depends partly on what industry you are talking about.
You can also use the FFO and AFFO financial calculations to help determine if the stock price is relatively cheap or expensive. You can look at the Price/FFO Ratio or Price/AFFO Ratio over time by calculating the P/FFO and P/AFFO using high, low and median stock prices over the past 5 and 10 years. The AFFO calculation is relatively new, so you may be able just to look at relative P/AFFO ratios over the past 5 years.
Another measure you can use is FFO yield or AFFO yield. You can then determine if the yield is a good one for your investment money or what the market is willing to pay for a property. In Investopedia, there is a good article called "How To Assess A Real Estate Investment Trust (REIT)" that explains how to use AFFO and FFO financial measurements.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
For definitions of these terms, go to Investopedia for the definition on FFO and AFFO. Also, the Blogger Thicken by Wallet did a good review of FFO and AFFO financial calculations. This entry is a bit old, but it is still relevant.
A problem is that different analysts can calculate these values differently. So it is a good idea to go to the same source to get the values for a particular stock you are investigating.
The FFO has been around a much longer time, but its calculation has changed over the years. This value actually started as a value call Distributable Income or some similar name. Currently a lot of analysts are now switching to AFFO as they feel it is a better financial measurement.
A common use for this financial measurement, besides looking at its growth, is to look at a Dividend Payout Ratio. You get a Dividend Payout Ratio by dividing the dividend by the FFO or AFFO value. This is a percentage of payout and good DPR re FFO and AFFO depends partly on what industry you are talking about.
You can also use the FFO and AFFO financial calculations to help determine if the stock price is relatively cheap or expensive. You can look at the Price/FFO Ratio or Price/AFFO Ratio over time by calculating the P/FFO and P/AFFO using high, low and median stock prices over the past 5 and 10 years. The AFFO calculation is relatively new, so you may be able just to look at relative P/AFFO ratios over the past 5 years.
Another measure you can use is FFO yield or AFFO yield. You can then determine if the yield is a good one for your investment money or what the market is willing to pay for a property. In Investopedia, there is a good article called "How To Assess A Real Estate Investment Trust (REIT)" that explains how to use AFFO and FFO financial measurements.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.
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