###### tags: `ASX` `ETF`
# Finance
## Websites
[Equity Growth Rate Calculator](https://www.ruleoneinvesting.com/equity-growth-rate-calculator/)
---
## Calculate fair share value for A2M
* Look up trailing twlve month EPS from Yahoo finance [EPS(TTM)](https://au.finance.yahoo.com/quote/A2M.AX?p=SYD.AX)
* Look up growth estimates from Wall Street Journal [Growth Estimates: Next 5 years (per annum)]( https://www.wsj.com/market-data/quotes/AU/XASX/A2M/financials/annual/balance-sheet)
* Calculate equity growth rate at [Equity Growth Rate Calculator](https://www.ruleoneinvesting.com/equity-growth-rate-calculator/)
* Look up P/E ratio 5 year high and P/E ratio 5 year low from MSN money [MSN Money> Quote search A2M > ANALYSIS: Price ratios](https://www.msn.com/en-au/money/stockdetails/analysis/asx-a2m/fi-aa45a2)
* Calculate years to double your money by [Rule of 72](https://www.investopedia.com/terms/r/ruleof72.asp)
* Estimate the fair share value now using the three numbers EPS(TTM), estimated equity growth rate, and future P/E as the following
```r!
# Look up EPS(TTM)
EPS.TTM <- 0.18
# Calculate estimated earnings per share (EPS) growth rate
equity.growth.rate.rule1 <- 0.71
equity.growth.rate.analyst <- 0.2516
# Choose the lower one to be conservative
if(equity.growth.rate.rule1<equity.growth.rate.analyst){
equity.growth.rate <- equity.growth.rate.rule1
} else {
equity.growth.rate <- equity.growth.rate.analyst
}
# Calculate estimated future P/E
future.PE.1 <- (equity.growth.rate)*100*2
# Look up P/E ratio 5 year high and P/E ratio 5 year low from MSN money
PE.Ratio.5Year.High=43.57
PE.Ratio.5Year.Low=32.54
future.PE.2 <- (PE.Ratio.5Year.Low+PE.Ratio.5Year.High)/2
# Choose the lower future P/E to be conservative
if(future.PE.1 < future.PE.2){
future.PE <- future.PE.1
} else {
future.PE <- future.PE.2
}
# Calculate future value of the share in 5 years as 5 years EPS * Future P/E
share.value.in.5.years <- EPS.in.5.years*future.PE
# Work backward to calculate the fair share value now
## Because the future share value, share.value.in.5.years, is a double at 15% return rate, so we can just divide this value by 2 to get the current share value
share.value.now <- share.value.in.5.years/2
# Adjust share value now by MOS
share.value.now.MOS <- share.value.in.5.years/2*(1-margin.safety)
```
Using the calculation above, the fair share value is calculated as 10.51918 for A2M. The closed price on 12 Mar 2021 was $8.77. Consider 30% margin of safety, the fair price is expected to be 7.363428
---
## Terminology
### Book value
What Is Book Value?
Book value is equal to the cost of carrying an asset on a company's balance sheet, and firms calculate it netting the asset against its accumulated depreciation. As a result, book value can also be thought of as the net asset value (NAV) of a company, calculated as its total assets minus intangible assets (patents, goodwill) and liabilities. For the initial outlay of an investment, book value may be net or gross of expenses such as trading costs, sales taxes, service charges, and so on.[Book Value](https://www.investopedia.com/terms/b/bookvalue.asp)
---
### Debt-Equity Ratio
What if your prospective investment target is borrowing too much? This can reduce the safety margins behind what it owes, jack up its fixed charges, reduce earnings available for dividends for folks like you and even cause a financial crisis.
The debt-to-equity (D/E) is calculated by adding outstanding long and short-term debt, and dividing it by the book value of shareholders' equity. Let's say XYZ has about 3.1 million worth of loans and had shareholders' equity of 13.3 million. That works out to a modest ratio of 0.23, which is acceptable under most circumstances. However, like all other ratios, the metric has to be analyzed in terms of industry norms and company-specific requirements.
---
### Dividend reinvestment plan (DRP)
A ‘full or partial’ Distribution Reinvestment Plan (DRP) means the ETF or managed fund allows you, the investor, to take none, some or all of your monthly, quarterly, half-yearly or yearly distributions as new units in the ETF/fund.
---
### Dollar Cost Averaging (DCA)
DCA allows you to invest small portions or shares of money in frequent increments.
---
### Earnings before interest and tax (EBIT)
### Earnings before interest tax depreciation and amortisation (EBITDA)
---
### Earnings per Share (EPS)
When buying a stock, you participate in the future earnings (or risk of loss) of the company. Earnings per share (EPS) measures net income earned on each share of a company's common stock. The company's analysts divide its net income by the weighted average number of common shares outstanding during the year.
If a company has zero or negative earnings (i.e. a loss) then earnings per share will also be zero or negative.[6 Basic Financial Ratios and What They Reveal](https://www.investopedia.com/financial-edge/0910/6-basic-financial-ratios-and-what-they-tell-you.aspx)
---
### Equity
Equity, typically referred to as shareholders' equity (or owners' equity for privately held companies), represents the amount of money that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company's debt was paid off in the case of liquidation. In the case of acquisition, it is the value of company sale minus any liabilities owed by the company not transferred with the sale.[Equity](https://www.investopedia.com/terms/e/equity.asp#:~:text=Equity%20represents%20the%20value%20that,company's%20debts%20were%20paid%20off.&text=The%20calculation%20of%20equity%20is,financial%20ratios%20such%20as%20ROE.)
---
### Equity holder
How can an equity holder not be a shareholder? Simply put, some businesses don't have "shares." A sole proprietorship, for instance, has just one owner, who owns a 100% equity stake (but no shares). A partnership is an arrangement under which two or more investors each own an equity stake in the business, but there is no stock and therefore no shareholders. For example, if you and three of your friends decide to form a partnership and open a restaurant, you all have equity in the business, but nobody owns shares.
To sum it up, all shareholders are equity holders, but not all equity holders are shareholders. It is possible to have an ownership interest in a business that does not issue shares of stock.
[What Is the Difference Between a Shareholder vs. an Equity Holder?](https://www.fool.com/knowledge-center/shareholder-vs-equity-holder.aspx)
### Exponential Moving Average (EMA)
An Exponential Moving Average is a type of moving average that gives more weight (importance) to recent prices in its calculation, this causes it to react quicker to recent price changes.
In a Simple Moving Average, there is no weighted approach, we simply add together the closing prices of the amount of periods we want to average and divide them by that period, that's it.
In an exponential moving average more weight will be given to recent prices. If you look at the image below, it gives you a rough idea (just as an example, not an accurate representation of how the formula works) of what it means to have different weights on each one of the exponential moving average points used in the calculation.
---
### Liquidity
Liquidity refers to the amount of turnover (or available turnover) in an ETF. We measure it by average daily volume on the ASX. Volume is a measure of market making activity and trading interest which makes it a reasonable estimate of liquidity.
It’s worth mentioning that it may not reflect liquidity in the underlying stocks which is typically much deeper for broad Australian share ETFs. However in times of crisis investors may not be able to rely exclusively on market makers for liquidity so daily volume is a relevant figure.
VAS has the highest liquidity with almost 23m being traded per day. STW, IOZ and A200 are behind followed by MVW. [What are the best Australian share ETFs of 2021?](https://blog.stockspot.com.au/best-australian-share-etfs/)
---
### Lump-Sum Investing (LSI)
LSI is when an investor takes a larger sum of money and invests it all at once into the market.
---
### Price-Earnings Ratio
Called `P/E` for short, this ratio reflects investors assessments of those future earnings. You determine the share price of the companys stock and divide it by EPS to obtain the `P/E` ratio.
If, for example, a company closed trading at 46.51 a share and EPS for the past 12 months averaged 4.90, then the `P/E` ratio would be 9.49. Investors would have to spend 9.49 for every generated dollar of annual earnings. Note that if a company has zero or negative earnings, the `P/E` ratio will no longer make sense, and will often appear as `N/A` for not applicable. [6 Basic Financial Ratios and What They Reveal](https://www.investopedia.com/financial-edge/0910/6-basic-financial-ratios-and-what-they-tell-you.aspx)
---
### Profit before tax (PBT)
---
### Returns
Total returns
Here is how we would calculate total returns for a client who had invested $10,000 for 8 months.
INVESTMENT AMOUNT 10,000
Investment period 8 months
a. Capital growth 258.40
b. Distributions 289.10
c. Management fees 13.20
Total $ return (a+b-c) 534.30
Total % return 5.34%
Total return formula
[How does Stockspot calculate returns?](https://blog.stockspot.com.au/calculating-returns/)
---
### Return on Equity
Common shareholders want to know how profitable their capital is in the businesses they invest it in. Return on equity is calculated by taking the firm's net earnings (after taxes), subtracting preferred dividends, and dividing the result by common equity dollars in the company.
Let's say net earnings are 1.3 million and preferred dividends are 300,000. Take that and divide it by the 8 million in common equity. That gives a ROE of 12.5%. The higher the ROE, the better the company is at generating profits.[6 Basic Financial Ratios and What They Reveal](https://www.investopedia.com/financial-edge/0910/6-basic-financial-ratios-and-what-they-tell-you.aspx)
---
### Security
A security is a financial instrument, typically any financial asset that can be traded. The nature of what can and can’t be called a security generally depends on the jurisdiction in which the assets are being traded.
In the United States, the term broadly covers all traded financial assets and breaks such assets down into three primary categories:
* Equity securities – which includes stocks
* Debt securities – which includes bonds and banknotes
* Derivatives – which includes options and futures
---
### Shareholder
A shareholder is a person who owns shares of stock in a company. Whether public or private, a share of stock in a company represents a fractional ownership interest, and may be sold to the public through an offering, or privately placed. If you buy shares of stock, you own a proportional ownership interest, based on the number of shares you own and the total number of outstanding shares. For example, if a certain company has 100,000 outstanding shares and you buy 1,000 of them, you will have a 1% ownership interest in the company.
[What Is the Difference Between a Shareholder vs. an Equity Holder?](https://www.fool.com/knowledge-center/shareholder-vs-equity-holder.aspx)
---
### Slippage
Slippage refers to how much you lose by crossing the spread when buying or selling an ETF. It’s calculated by the average percentage difference between the best buyer and seller during market hours.
It has more of an impact if you’re trading an ETF or making regular contributions because you’ll need to cross the spread more often to get invested. VAS currently has the lowest slippage at 0.02% (two hundredths of one percent) followed closely by STW at 0.04%.
By comparison the average Australian Equity managed fund offered on the ASX mFunds platform charges a bid/ask spread of 0.55% which is more than 27x more than VAS! ETFs have much lower slippage than most active funds which means investors aren’t starting behind the 8 ball when they invest. [What are the best Australian share ETFs of 2021?](https://blog.stockspot.com.au/best-australian-share-etfs/)
---
### Volatility
Volatility is a statistical measure of the dispersion of returns for a given security or market index. In most cases, the higher the volatility, the riskier the security. Volatility is often measured as either the standard deviation or variance between returns from that same security or market index.
In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a "volatile" market. An asset's volatility is a key factor when pricing options contracts.
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