The most common form of intangible assets is goodwill, which arises when one company acquires another. Goodwill is the difference between the price the acquiring company pays and tangible value—or equity—of the target company.

When you’re using the P/E ratio, remember that firms with an abundance of free cash flow are likely to have low reinvestment needs, which means that a reasonable P/E ratio will be somewhat higher than for a run-ofthe-mill company. The same goes for firms with higher growth rates, as long as that growth isn’t being generated using too much risk.

But what happens if the stock takes a tumble? Many people’s options will be worthless—their exercise prices will be higher than the market price—and, consequently, fewer options will be exercised. Fewer options are now exercised, the company’s tax deduction gets smaller, and it has to pay more taxes than before, which means lower cash flow.

For interest rates, you can use a long-term average of Treasury rates as a reasonable proxy.

The best yield-based valuation measure is a relatively little-known metric called cash return. In many ways, it’s actually a more useful tool than the P/E. To calculate a cash return, divide free cash flow by enterprise value. (Enterprise value is simply a stock’s market capitalization plus its long-term debt minus its cash.) The goal of the cash r

Executives who complain about how undervalued their firm’s shares are or who opine about its true worth are probably more concerned with the value of their options than with making solid, long-term business decisions. Self-promotional managers, meanwhile, are not likely to make decisions that are in the best interests of long-term shareholders. If

This is an important number to look at because it indicates how a company is financing its activities. Rapidly growing companies often issue large amounts of new stock, which can dilute the value of existing shares but which also give the company cash for expansion. Slower growing companies that generate a lot of free cash flow tend to buy back sig

academic research shows that strong earnings growth is not very persistent over a series of years; in other words, a track record of high earnings growth does not necessarily lead to high earnings growth in the future.

inventory turnover by dividing a company’s cost of goods sold by its inventory level.