Deleveraging Market-to-Sales Ratio
factor.formula
Deleveraged Market-to-Sales Ratio =
Where: Net operating assets market value =
The formula consists of two parts: 1. **Numerator: Last 12 Months Operating Income (TTM)** - **Concept:** Refers to the sum of the company's operating income for the last 12 consecutive months. This is a rolling calculation indicator that can more timely reflect the company's recent operating conditions and income capabilities. Using TTM data can smooth seasonal fluctuations and make the data more comparable. 2. **Denominator: Operating Net Asset Market Value** - **Concept:** Operating Net Asset Market Value is an estimate of the market value of assets related to the company's operating activities. Compared with the traditional market value, it adds considerations of corporate debt and cash, making it more representative of the true market value of the company's core operating assets. - **Calculation method:** Calculated using the traditional market value plus financial liabilities and subtracting financial assets. - **Market Value (Market Capitalization):** The total market value of all issued shares of a company, reflecting the market pricing of shareholders' equity. - **Financial Liabilities (Financial Liabilities):** Liabilities incurred by a company due to financial activities, such as bank loans, bonds, etc. These liabilities represent the company's financing costs and financial leverage. - **Financial Assets:** Assets held by a company that can generate future cash inflows, such as cash, short-term investments, accounts receivable, etc. These assets represent the company's liquidity and debt-paying ability.
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The company's total operating income for the last 12 months
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Adjusted market value of a company, taking into account financial assets and liabilities
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Total market value of the company's stock
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Liabilities of the company arising from financial activities
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Financial assets held by a company that can generate future cash inflows
factor.explanation
The deleveraged market-to-revenue ratio is an improved version of the traditional price-to-sales ratio. The traditional price-to-sales ratio (market value/sales revenue) is easily affected by the capital structure of the enterprise. Highly leveraged enterprises may be misjudged as undervalued due to their debt burden, resulting in a low market value. To solve this problem, this factor uses the market value of operating net assets instead of the traditional market value.
Core idea:
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Eliminating the impact of leverage: By adding back financial liabilities and subtracting financial assets, this factor eliminates the distorting effect of the enterprise's leverage structure on the market value, making valuation comparisons between enterprises with different leverage levels more fair and accurate.
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More accurate value measurement: The market value of operating net assets focuses more on reflecting the market value of the core operating assets of the enterprise, stripping away the impact of financial activities, and can more accurately assess the true value of the enterprise.
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Market pricing: The denominator of this factor uses the market value data of equity and debt, and both debt and equity are priced by market, ensuring the matching between the numerator and denominator.
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Stock selection ability: Compared with the traditional price-to-sales ratio, this factor can effectively improve stock selection ability, especially in the value investment strategy, it can more effectively screen out undervalued high-quality companies.