Let's start  ...

The Ratio Analyzer is a tool that is available to StockCentral subscribers.  You will find it under the Tools tab.  Click "tools" and then click "ratio analyzer." If you are logged in, you'll see the Ratio Analyzer with data for Microsoft displayed.  That's nice, you say ... but ... what does it do?"

Here is a description from the Online Help for the Ratio Analyzer:

"Successful business owners are constantly evaluating the performance of his or her company, comparing it with the company's historical figures, with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of a company's effectiveness, however, one needs to look at more than just easily attainable numbers like sales, profits, and total assets. You must be able to read between the lines of financial statements and make the seemingly inconsequential numbers accessible and comprehensible.

Analysts interpret the numbers on financial statements (10Q's filed quarterly, 10K's filed annually, all available for free from either the company website, or here from the SEC) using a variety of ratios and other comparative measures. Such analysis covers:

• Statement of financial position (aka Balance Sheet);
• Statement of earnings; and
• Statement of cash flows

This massive data overload could seem staggering. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Comparative ratio analysis helps you identify and quantify a company's strengths and weaknesses, evaluate its financial position, and understand any risks you may be taking by investing in it."

In other words, the Ratio Analyzer helps you understand the numbers that appear in a company's financial statement, and you can compare some numbers to their values in the past.  To help you, we offer comments on the numbers, and many of these are color coded.  We identify "good" (green), "caution" (yellow or gold), and "bad" (red).  The comments that explain these judgments are also color coded.  By looking at the colors you can get a good handle on whether a company looks good or not, and the comments can lead you to digging deeper and analyzing the results.

If you look carefully, you'll see that some of the numbers are photographic in nature and capture a "point in time" look at the company.  The Quick Ratio is a number like this, as it involves current cash, marketable securities, accounts receivable, and total current liabilities.  All of these numbers are measured at a particular time, like the end of the last fiscal year, or then end of the current quarter.

Other numbers represent annual or annualized data, such as sales.  This is the total sales for a fiscal year or for four consecutive quarters.

You'll notice that the Ratio Analyzer presents data at the end of each quarter.  So, "point in time" numbers are reported as of the end of the quarter.  Annualized data are for the last 4 quarters, or trailing twelve months.

Now, let's look in more detail at the structure of the Ratio Analyzer report.

• There is a header section that identifies the company, its ticker symbol, and the exchange on which the stock is traded.  The header also identifies the end of the "most recent quarter" for the purpose of analysis, and there is a box into which you can type a ticker symbol.
  
  If you haven't spotted it yet, here is our new feature:  the end of the quarter.  Notice that this is a drop-down box, so you can look at the Ratio Analyzer result for any quarter in our database.  By doing this, you can see how the numbers change quarter-to-quarter or year-to-year.  Just click the drop-down box, and select the quarter that you'd like to use as the ending quarter.  All of the other data in the analysis is adjusted for that ending quarter!

• Next there are five sections of analysis that present data related to

• liquidity,
• efficiency,
• cash flow,
• profitability, and
• assets and inventory. 

We will examine each of these groups of data in subsequent sessions of this workshop.

• Finally there is a table that presents the data from which the Ratio Analyzer report is constructed.  You should be able to compute all of the results in the analysis using these data.  Note that the 10-year bond rate and the closing price at the end of the quarter are also there.

 Going through all of this data can be daunting, but we provide help at every step. 

• If you point your mouse at any item, you'll get a "rollover" explanation of that item.

• If that's not enough, click on the Online Help link in the left column f for more help.  All of the calculations are defined in both the rollover and the Online Help. 

• There is also a Printable User Guide -- click the link to download the PDF file.  You can read it or print it for reference.  The Printable User Guide also includes an extensive glossary of financial terms.

At this point, you should be playing with the Ratio Analyzer.  Tomorrow's session will begin the line-by-line dissection of the Ratio Analyzer report.  Please ask any question that you might have.  I'm here to answer them.

are you going to highlight a certain stock or talk in general terms?

Joe,

Can you please clarify a point for me. Is the ratio information shown for the end of a 4th quarter for that quarter or is it reported on an annual basis? If it is only for the 4th quarter, is it possible to obtain an annual result or does one have to look at all 4 quarters and average those numbers?

Saul Seinberg...

Slingerlands, NY

I wasn't intending to highlight a particular stock, other than refer to number for Microsoft, the default company.  But, if there are companies you'd like to have me discuss, please point them out.

Saul,

Oops!  I have egg all over my face as you have found a glaring bug!

Items such as sales are SUPPOSED to be trailing twelve months, but clearly they aren't.  They are the quarterly numbers.  I'm fixing this now!

Joe,

No problem with the egg or the quarterly basis.  I appreciate the capability of the ratio analyzer and your willingness to fix it.

Now if you could only make it work for future quarters today, I'd be a happy man .

Saul...

Saul,

The "future quarters" report most certainly will be a premium service ...

Saul,

There are two sorts of numbers in the Ratio Analyzer report: 

• "snapshots" are numbers that represent the values at the end of a quarter, such as Total Current Assets of Total Current Liabilities, and
• "annualized" numbers that represent the last 4 quarters of activity, such as Sales.  If the quarter ends a fiscal year, the sales would be the sales for that fiscal year.

Unfortunately, the report you were looking at was not displaying annualized numbers, but was displaying quarterly numbers, i.e. sales for the quarter.

I'm embasrrassed to say that a gremlin snuck OUT of the code that generates the reports, so the 4 quarters were not added.  That's been fixed now, I hope.  If you use the drop-down box to select the most recent fiscal year end quarter, you can compare the table at the bottom of the RA report to the StockCentral Data Report.  You should be able to match the this year and prior year numbers in the two reports.  You can also go to a site like MoneyCentral.com and look at the Balance Statement, Income Statement, and Cash Flow Statement and match those numbers with ours. 

You can get at those statement fairly quickly from our Research Links page.  I click the "MSN:Money Financial Results link under Financials, then click the Statements link in the left column.

Thanks for the question, because it identified an error ... one that has disappeared!

-------

Since you sort of also asked another question, would you like to see this report also use strictly quarterly data?

Joe Craig asked:

"....would you like to see this report also use strictly quarterly data?"

(1) Joe Craig asked: "Where is "quarter ending 2007/12" not enough? What would you like for it to say?"

For MSFT, quarter ending 2007/12 and quarter ending 2007/09 and quarter ending 2007/06 all tell me that the annualized data is for the trailing twelve months (TTM) ending on the specified quarter.  I think I have that right as I checked the Sales growth percentages to make sure they mathmatically agreed with the annual dollar data at the bottom of the R. A. page.

But those quarter ending dates don't tell me that MSFT's fiscal year ends in June (as does the Hemscott data file and Take Stock Online). I place more significance and weight on the FY end data than on the other quarters....don't we all you want to know that?

(2) Joe also wrote: "Including some graphics so that you can look at trends, and even calculating trend lines is certainly in the future for the Ratio Analyzer."

What's the timetable for "certanly in the future"?

Is it possible to show some long-term trends now, either numbers or graphics, without waiting for some indefinite and unspecified future?

The data is there, but it is way too tedious to expect subscribers to calculate a five year trend as there are some 29 data items in the R.A. for each of the 7700 companies in the database.

As you might know, Ratios at both Reuters and Money MSN show five year averages for High PE, Low PE, Sales Growth, EPS Growth, Dividend Growth, Gross Margin, Pre-Tax Margin, Net Profit Margin, ROE, and ROA.  Of course, unlike the R.A., Reuters and Money MSN do not use Hemscott data.

Armin