What Is Intrinsic Value? – 2nd Level Analysis Data

My definition of intrinsic value boils down to “a wonderful company fairly valued”. In previous posts I defined 14 value elements that describe what I mean by “a wonderful company fairly valued”. Now I’m looking for a better, simpler way to present the value elements & the way I use them.

The 14 Elements Value Elements Are:
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or No Debt
(9) Business Model I Understand
(10) A Durable Competitive Advantage
(11) Measure Risk
(12) Reliable Long term Dividend Income Stream
(13) Increasing Annual Dividends Faster Than Inflation
(14) Expect at least a 9% Total Return Compounded Annually

I use a three level hierarchy to test each stock; in my previous post I explained the 1st Level.

When a stock passes the 1st Level I collect more data and test it at the 2nd Level and if it passes that test I collect still more data and test it at the 3rd Level. Those that pass the 3rd Level I buy.

Collecting 2nd Level Data
The additional data needed for 2nd Level analysis begins with the current market price. I get the price and nearly all the rest of the 2nd Level data from the MSN Money/Investing/Stocks web site. The price comes from the landing page in the upper left quadrant. Today, For Abbott Laboratories (ABT), the closing price was $48.63 per share. I enter the price and today’s date in the 2nd Level tab of my stock analysis Excel workbook.

Next I go to the company’s Income Statement by pressing first the “Financial Results” link & then the “Statements” link.

This page, labeled “Abbott Laboratories: Financial Statement”, displays the Income Statement for the previous five years. I then enter the most recent “Total Revenue” number and the earliest “Total Revenue” number in the 2nd Level tab as a calculation; = (newest total revenue)/(oldest total revenue) to calculate the Revenue Growth Ratio.

I scroll down to the “Net Income” line and enter a similar calculation;
= (newest net income)/(oldest net income) as the Net Income Growth Ratio. I scroll down further and pick up the oldest value of “Dividends per Share - Common Stock Primary Issue” and enter it in the “5th Year Dividend” field of the 2nd Level tab. For foreign stocks and ADR’s you must make sure the figures are compatible. Sometimes, the “Primary Issue” is denominated in another currency and sometimes ADR’s are not one for one with the original stock shares. For example, you might find an ADR that represents two original shares; in this case the value of the dividends paid five years ago must be divided by two to make it compatible with the current dividend per share recorded in the 1st Level tab. Because of this problem and the currency problem I generally get the five year old dividend from a five year price chart with dividends displayed.

Then, I enter today’s date to indicate the age of the income statement data. I also go to the Company Report page and record the company’s home country. The “Company Report” link is in the upper left quadrant of most pages in this web site.

The last bit of data needed for the 2nd Level analysis is the current yield on ten year Treasury Bonds (“10-Yr Bond”). This bit is available on the Yahoo! Finance/Investing page as part of the “Market Summary” in the upper left quadrant. I refresh the Treasury bond figure about once a month and use the same figure to analyze all stocks between refreshes.

When the data is entered calculations happen automatically. However, if I’m adding a new stock ticker to the tab I must also add the ticker in two other tabs and copy formulas to the new rows headed by the new ticker. The three tabs are interlinked with each other and with the 1st Level analysis tab.

Next I’ll summarize the calculations performed.

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What Is Intrinsic Value? – 1st Level Analysis

My definition of intrinsic value boils down to “a wonderful company fairly valued”. In previous posts I’ve defined 14 value elements that describe what I mean by “a wonderful company fairly valued”. During the process, however, I found some of them redundant or combinable. So, I’m taking another look at my system to find a better & simpler way to present it.

The 14 Elements Value Elements Are:
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or No Debt
(9) Business Model I Understand
(10) A Durable Competitive Advantage
(11) Measure Risk
(12) Reliable Long term Dividend Income Stream
(13) Increasing Annual Dividends Faster Than Inflation
(14) Expect at least a 9% Total Return Compounded Annually

I’ve designed my stock analysis as a three level hierarchy. When a stock passes one level more data is needed at the next level for a deeper analysis. But the higher analysis isn’t done on a stock unless it passes the previous test. In this way I minimize my time spent acquiring and refreshing data.

Collecting the Data
First level data is pulled from two web pages, both are accessed from MSN Money’s Investing/Stocks landing page, http://moneycentral.msn.com/investor/home.aspx which I’ve set up as a “favorite” in my browser.

When I set up a stock in the 1st Level tab, I enter the US ticker symbol into the “Name or symbol(s)” field in the upper left corner of the landing page and press the “Get Quote” button. I also enter the ticker in my spreadsheet.

As I write this, I’m working through the steps so I won’t leave anything out and I’m looking up ABT, Abbott Laboratories. After pressing the “Get Quote” button, the site brings up the most recent price quote with some summary data.

Next, I copy & paste into my spreadsheet the company’s name as shown on the web page; in this case, “Abbot Laboratories (ABT)”. Then, I scroll down and take note of “The Motley Fool CAPS Rating”. Today, ABT’s CAPS rating is “5”, that is. 5 gold stars are displayed; and I enter “5” in the “CAPS” field of my spreadsheet.

Then, I scroll to the upper right corner of the page and record the annual dividend and the dividend yield from the “fyi Dividend & Yield” field, the EPS from the “Earnings/Share” field, and the “Forward P/E”. I enter all of these in the 1st Level analysis tab. I also enter today’s date so I’ll know when the data was refreshed.

Lastly, I press the “Company Report” link located on the left edge of the page about a third of the way down from the top. This takes me to a page with a general description of the company’s operations and location. It also displays an “Industry” field that defines an industry sector. For ABT, the “Industry” is “Drug Manufacturers – Major”. I use this information to classify the stock by sector and I record the sector in the spreadsheet.

That’s all the data I need at the 1st Level. When, eventually, I refresh the data the ticker, company name, and sector will seldom need updating so, normally, I just collect the CAPS rating, dividend, yield, EPS, and forward P/E from the “Quote” page and, of course, enter the new date.

1st Level Analysis
The analysis is very simple and contained in two cells per stock record (one line on the spreadsheet).

In one cell I calculate an EPS based Dividend Payout Ratio. In the other cell I screen the data elements.

The screening formula requires:
(1) The CAPS rating to be greater than “3”
(2) The Dividend Payout Ratio to be less than “100%”
(3) The EPS to be greater than “0”
(4) The Forward P/E to be less than “16”
(5) The Dividend Yield to be greater than “2.00%”

Exceptions are made for stocks with a “Sector” classification of “Fund” or “MLP”. Ticker symbols with these classifications automatically pass the 1st Level test.

Individually, these screening requirements don’t seem very strenuous but, taken together; they eliminate about 80% of the stocks I consider.

Next I’ll look at the 2nd Level Analysis.

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What Is Intrinsic Value? – Reconsidering Value Elements

My definition of intrinsic value boils down to “a wonderful company fairly valued”. In previous posts I’ve defined 14 value elements that, taken together, describe what I mean by “a wonderful company fairly valued”. During the process of precisely defining the 14 value elements, however, I found some of them redundant and others possibly combinable. So, I’m taking a second look at my analysis system - a system that resulted from developing the 14 value elements - and see if there is a better & simpler way to present it.

The 14 Elements Value Elements Are:
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or No Debt
(9) Business Model I Understand
(10) A Durable Competitive Advantage
(11) Measure Risk
(12) Reliable Long term Dividend Income Stream
(13) Increasing Annual Dividends Faster Than Inflation
(14) Expect at least a 9% Total Return Compounded Annually

I’ve divided my analysis into three levels. The first level is a screen. Every stock I find of interest I add to my Excel workbook and test against the screen. As I write this there are 1,324 stocks and funds listed in my first level analysis tab. This screen requires a minimum of data which is important since I enter all of the data manually. Today, 251 ticker symbols pass the first screen.

Stocks that pass the first screen are tested at the second analysis level. Of the 251 stocks & funds that pass my first analysis 230 are set up in the second level. I haven’t yet set up the other 21 but I will eventually. The second analysis requires twice as much data as the first, but when those data are entered I get an immediate pass/fail signal; those that pass I take directly to the third analysis level.

The data required for the third level is about equal to that required for the second. Sixty-three stocks & funds have been subjected to the third level analysis to date. Of those, 22 pass. They are my “Buy” list. Seventeen others are close enough to passing that they make up my “Watch” list.

In my second level analysis tab I enter daily prices in a semi-automatic way for my “Buy” & “Watch” list stocks. Prices affect the calculations in both the second & third levels. So, price swings sometimes move a stock from the “Watch” list to the “Buy” list and vice-versa.

Next post, I’ll run through the first level analysis in some detail.

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What Is Intrinsic Value? – 9% Minimum Total Return

My definition of intrinsic value boils down to “a wonderful company fairly valued”. By judging 14 value elements I’ll determine if a company deserves this description. It’s my intention to select and buy stocks based on their intrinsic value and to thereby get rich slowly; rich enough, at least, to fund my retirement.

14 Elements in My Definition of Intrinsic Value
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or No Debt
(9) Business Model I Understand
(10) A Durable Competitive Advantage
(11) Measure Risk
(12) Reliable Long term Dividend Income Stream
(13) Increasing Annual Dividends Faster Than Inflation
(14) Expect at least a 9% Total Return Compounded Annually

(14) Expect at least a 9% Total Return Compounded Annually
Value element (14) addresses the last of my financial goals; to achieve a minimum total annual return of 9%. I hope to do better, but 9% annual returns are my minimum target.

Total returns are defined by the combination of dividends and capital appreciation. The current dividend yield of a stock is readily available and is used in previously discussed value elements.

To estimate future capital appreciation I’ll use the five year earnings growth constrained by five year revenue growth from value element (2) Strong Earnings Growth to calculate a Compound Annual Growth Rate (CAGR). Then, I’ll add the CAGR and the current dividend yield to estimate the future Total Annual Return Rate (TARR).

Since I insist on a 9% minimum TARR, I won’t consider any company with a calculated TARR less than that. I’ll also reward companies proportionately for achieving a higher TARR score.

Now that I’ve defined all 14 Value Elements I think some of them may be redundant. In the next post I’ll review the list and see if some consolidation is in order.

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What Is Intrinsic Value? – Dividend Growth Greater Than Inflation

My definition of intrinsic value boils down to “a wonderful company fairly valued”. By judging 14 value elements I’ll determine if a company deserves this description. It’s my intention to select and buy stocks based on their intrinsic value and to thereby get rich slowly; rich enough, at least, to fund my retirement.

14 Elements in My Definition of Intrinsic Value
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or No Debt
(9) Business Model I Understand
(10) A Durable Competitive Advantage
(11) Measure Risk
(12) Reliable Long term Dividend Income Stream
(13) Increasing Annual Dividends Faster than Inflation
(14) Expect at least a 9% Total Return Compounded Annually

(13) Increasing Annual Dividends Faster than Inflation
Value element (13) is the 4th element dealing with dividends. It’s closely related to (4) Consistent Dividend Increases.

In element (4) I calculate a five year dividend growth ratio. If the ratio (current dividend)/(dividend five years ago) is greater than 1.0 the company passes this test.

In recent years annual inflation rates were in the 3% range. A steady 3% inflation rate corresponds to a dividend growth ratio value of about 1.16; therefore, for a dividend to have just kept up with inflation over the recent five years the growth ratio needs to be 1.2 (rounded up).

To pass value element (13) Increasing Annual Dividends Faster than Inflation, I’ll require a minimum dividend growth ratio of 1.3. Higher is, of course, better.

Just because a company’s dividend payout grew faster than inflation over the recent five years doesn’t guarantee similar performance in the future. But, if the company’s payout hasn’t kept up with inflation it certainly can’t be relied upon to keep up with future inflation.

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What Is Intrinsic Value? – Reliable Long Term Dividends

My definition of intrinsic value boils down to “a wonderful company fairly valued”. By judging 14 value elements I’ll determine if a company deserves this description. It’s my intention to select and buy stocks based on their intrinsic value and to thereby get rich slowly; rich enough, at least, to fund my retirement.

14 Elements in My Definition of Intrinsic Value
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or No Debt
(9) Business Model I Understand
(10) A Durable Competitive Advantage
(11) Measure Risk
(12) Reliable Long Term Dividend Income Stream
(13) Increasing Annual Dividends Faster than Inflation
(14) Expect at least a 9% Total Return Compounded Annually


(12) Reliable Long Term Dividend Income Stream
This is the third value element focused on dividends. Obviously dividends are important to me, but how is a “Reliable Long Term Dividend Income Stream” different from (3) Dividend Consistency and (4) Consistent Dividend Increases?

Well, value elements (3) and (4) look at history. Element (12) wants to look into the future. Since I have no crystal ball I can only guess at the future but I’ll make the guess as educated as I can.

Scoring well on value elements (3) & (4) is a baseline. If dividends were inconsistent in the past, I can’t expect the future dividend stream to be better. However, when I measure dividend growth I record the dividends paid five years ago and the current annualized payout. I see, but I don’t record, the intervening three years.

When I look at the five annual payout figures I can easily evaluate the series looking for years without dividend increases, years with dividend cuts, and years with zero dividend payments as well as consistent annual increases. In my analysis, I’ll reward companies that increase dividends every year and progressively punish them for years without increases and for years without payments.

I’m already rewarding companies for being listed in the Dividend Achievers and the Dividend Aristocrats indexes so I won’t consider those measures further.

(11) Measure Risk includes measurements of an earnings based dividend payout ratio (Div/EPS) and a cash flow based payout ratio (CF/Div). These risk measurements are predictors of a company’s ability to pay future dividends.

Another predictor is the consistency of a company’s earnings. In calculating value element (2) Strong Earnings Growth I look at five years of net income. As in the value element (4) I only use the net income from the most recent year and from five years ago.

However, I can also look at the three intervening years and record year over year drops in net income and especially losses. I'll reward companies with consistently increasing net income and punish them progressively for years when income falls and for losses.

“Predictions are hard, especially about the future;” As Yogi Berra said. But, using these criteria I hope to select investments that provide a reliable long term dividend income stream. The remaining risk to my dividend stream I’ll mitigate by maintaining a diversified portfolio of dividend payers.

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What Is Intrinsic Value? – Measure Risk

My definition of intrinsic value boils down to “a wonderful company fairly valued”. By judging 14 value elements I’ll determine if a company deserves this description. It’s my intention to select and buy stocks based on their intrinsic value and to thereby get rich slowly; rich enough, at least, to fund my retirement.

14 Elements in My Definition of Intrinsic Value
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or No Debt
(9) Business Model I Understand
(10) A Durable Competitive Advantage
(11) Measure Risk
(12) Reliable Long Term Dividend Income Stream
(13) Increasing Annual Dividends Faster than Inflation
(14) Expect at least a 9% Total Return Compounded Annually

(11) Measure Risk
Value element number (11) “Measure Risk” comes from Charlie Munger. However, it fits with Warren Buffet’s “Rule #1 – Never lose money.”

There are many sources of investment risk; some of them are:

Political risk – the risk that government action might harm a company’s business performance; for example withdrawing a previously granted oil drilling lease on government land (recently done in the United States by the Obama Administration) or even expropriating a company’s assets as was done to several oil companies by Venezuela.

Management risk – the risk that corporate management will do something stupid, like running a bank at more than 30:1 debt leverage aka Citibank in 2007. This is why Peter Lynch, the acclaimed former manager of the Fidelity Magellan Fund, said he wants to invest in companies that a monkey could run, because eventually one will.

Obsolescence risk – the risk that a company’s primary product or service may be replaced by an entirely different technology; this is the reason the New York Times hasn’t made a profit in years and why “Newsweek” seems to be for sale.

Economic cycle risk – the risk that a company’s revenue and earnings will be strongly affected by the business cycle; with profits in cycle peaks and losses at the bottom of recessions.

Business model risk – the risk that something intrinsic to the business might significantly damage the company’s performance, for example; Causality Insurers are subject to the risk of a serious natural disaster such as a major earthquake or hurricane. Airlines are subject to the risk of flight disruptions from weather and terrorism. Pharmaceuticals are at risk that they'll be unable to develop new drugs to replace revenue lost when a major drug patent expires.

There are probably many other risks, but this list is sufficient for me. Instead of trying to address each type of risk I’ll seek to invest it robust companies that can survive most risks.

To this end value elements (1) Strong Cash Flow, (8) Little or No Debt, (9) Business Model I Understand and (10) A Durable Competitive Advantage are very important. Scoring well in elements (1), (8) & (10) will allow a company to weather many storms.

Scoring poorly in (9) is a red flag warning me that I don’t know what the risks are with this company. I recently sold my positions in two Business Development Companies (BDC’s) as a result of measuring value element (9). I don’t understand the multitude of financial instruments used by BDC’s to invest in their portfolio companies. I find BDC annual reports baffling, so even though I sold them for nice profits I won’t buy them again unless I first learn how they make money.

Dividend Risk
Since I’m primarily a “Dividend Growth” investor I’m concerned with the safety of a company’s dividend payout. Therefore, I’ll measure the risk of a dividend cut with a “Dividend Payout Ratio”. This ratio will be calculated by dividing the annual dividend payout per share by the earnings per share (Div/EPS). I’m already collecting these values in order to measure other value elements. I won’t consider companies with negative payout ratios or ratios greater than 100%. I’ll prefer companies with payout ratios less than 50%.

I’ll also calculate a “Cash Flow Dividend Payout Ratio” by dividing cash flow per share by annual dividends per share (CF/Div). Cash flow per share (CF) is collected for value (1) Strong Cash Flow, so it’s already available. I’ll prefer companies with higher values of CF/Div

There’s no way to escape investment risk. However, by measuring risk (or perhaps lack of risk) and requiring companies I invest in to score well on the risk measurements including dividend risk; I hope to pursue Buffet’s Rule #1 – Never lose money.

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What Is Intrinsic Value? – Competitive Advantage

My definition of intrinsic value boils down to “a wonderful company fairly valued”. By judging 14 value elements I’ll determine if a company deserves this description. It’s my intention to select and buy stocks based on their intrinsic value and to thereby get rich slowly; rich enough, at least, to fund my retirement.

14 Elements in My Definition of Intrinsic Value
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or No Debt
(9) Business Model I Understand
(10) A Durable Competitive Advantage
(11) Measure Risk
(12) Reliable Long Term Dividend Income Stream
(13) Increasing Annual Dividends Faster than Inflation
(14) Expect at least a 9% Total Return Compounded Annually

(10) A Durable Competitive Advantage
Value element number (10) is taken from Benjamin Graham and Warren Buffet. They’ve frequently called it an “economic moat” or more often just a “moat”. The idea is that some companies have developed an unassailable position in their industry and markets. The advantage might come from brand loyalty as with Coca Cola and Altria (Marlboro Brand). It could derive from infrastructure as with WalMart and Burlington Northern or from a culture of innovation like Apple or Google. It could come from anything, but wherever it comes from and whatever it is, it gives a company a dominant competitive advantage. Berkshire-Hathaway’s competitive advantage is having Warren Buffet and Charlie Munger running the company.

Because the Moat, if it exists, could be anything it must be found through analysis and judgment. Since it can be intangible it can’t be calculated nor can the degree of advantage be easily calculated. So, I’ll assign a subjective integer score from 0 to 3 with a “3” meaning a maximum competitive advantage and a “0” meaning no competitive advantage exists.

I’ll rely on my research, my experience, and my judgment to assign the competitive advantage score knowing it’s an imprecise estimate and I’ll sometimes be wrong. I hope to err to the low side of the scale. That is, unless a competitive advantage seems obvious to me I’ll assume there’s none.

In my investment analysis I’ll prefer companies with higher scores but I won’t exclude companies solely because their score is low.

Next, I’ll measure risk; value element number (11),

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What Is Intrinsic Value? – Business Model I Understand

My definition of intrinsic value boils down to “a wonderful company fairly valued”. By judging 14 value elements I’ll determine if a company deserves this description. It’s my intention to select and buy stocks based on their intrinsic value and to thereby get rich slowly; rich enough, at least, to fund my retirement.

14 Elements in My Definition of Intrinsic Value
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or No Debt
(9) A Business Model I Understand
(10) A Durable Competitive Advantage
(11) Measure Risk
(12) Reliable Long Term Dividend Income Stream
(13) Increasing Annual Dividends Faster than Inflation
(14) Expect at least a 9% Total Return Compounded Annually

(9) A Business Model I Understand
Value element number (9) is borrowed from Warren Buffett’s list. At its root, “A Business Model I Understand” means staying within my circle of competence – those industries and technologies that I “grok”. If I intuitively grasp the product or service and the framework of how the business makes a profit – then I can say the company has a business model I understand.

If, on the other hand, in my mind the products or services are best be represented by a “black box” and I haven’t a clue how the black box makes a profit – then, clearly, I don’t understand the business model. This is a subjective evaluation. Only I can decide whether or nor I “get” a particular business. And, I ether get it – or I don’t. So, I will score value element (9) as either a “-1” (for businesses I don’t understand) or “+1” for those I do.

Since a blank field in Excel is interpreted as a zero in most calculations, a “0” rating for value element (9) will mean I haven’t yet assigned a value.

Research and learning will sometimes change a company’s score for this value element. In 2007, I thought I understood the business model of American banks. In 2008, I discovered that I didn’t. In 2006, I knew I didn’t understand the energy business very well but, after a fair amount of reading, I understand it much better in 2010.

Thinking through this simple mechanism helped me clarify exactly what I mean by “A Business Model I Understand” and now I see how to incorporate this value element into my overall analysis of a stock.

Next, I’ll tackle value element (10) “A Durable Competitive Advantage”.

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What Is Intrinsic Value? – Little Or No Debt

My definition of intrinsic value boils down to “a wonderful company fairly valued”. By judging 14 value elements I’ll determine if a company deserves this description.

14 Elements in My Definition of Intrinsic Value
(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases
(5) Profitability
(6) The Formula: E(2R+8.5)*Y/4 = Intrinsic Value per share
(7) Good returns on equity
(8) Little or no debt
(9) A business model I understand
(10) A durable competitive advantage
(11) Measure Risk
(12) Providing reliable long term dividend income streams
(13) Increasing annual dividends faster than the inflation rate
(14) Expect to generate at least a 9% total return compounded annually

(8) Little or no debt
Wonderful companies have little debt. This ensures that in difficult times they can service their debt without endangering their survival. I’ll measure my eighth value element, “Little or no debt”, by picking up a company’s “Current Ratio” and its “Total Debt / Equity” ratio from The Motley Fool - Stats Tab after logging into the site.

“Current Ratio” is defined as current assets divided by current liabilities from the company’s balance sheet. I prefer to use the inverse of the current ratio (current liabilities divided by current assets. So, when I pick up the “Current Ratio” from The Motley Fool - Stats Tab I’ll divide it into “1.0” to get the inverse.

On April 14th, 2010 the “Current Ratio” for Abbott Laboratories (ABT) was “1.80”. The inverse then is 1/1.80 = 0.56. In my analysis I’ll penalize companies for relatively higher Inverse Current Ratios.

I’ll use the “Total Debt / Equity” ratio exactly as shown on The Motley Fool - Stats Tab. And, I’ll also penalize companies for relatively higher “Total Debt / Equity” ratios.

Eight value elements are defined leaving six more to go.

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