1. Financial Statement Analysis

2. Determinants of Intrinsic Value:
Using Ratio Analysis
Net operating
profit after taxes
Required investments
in operating capital −
Free cash flow
(FCF) =
FCF1
FCF2
FCF∞
...
Value =
(1 + WACC)1
(1 + WACC)2
(1 + WACC)∞
Weighted average
cost of capital
(WACC)
For value box in Ch 3 ratios FM13.
Market interest rates
Firm’s debt/equity mix
Cost of debt
Cost of equity
Market risk aversion
Firm’s business risk

3. Overview Ratios facilitate comparison of: Ratios are used by:
One company over time
One company versus other companies
Ratios are used by:
Managers to identify areas of weakness and strength
Lenders to determine creditworthiness
Stockholders to estimate future cash flows and risk

4. RATIO ANALYSIS Liquidity Ratios Asset Management Ratios
Debt Management Ratios
Profitability Ratios
Market Value Ratios
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).

5. Liquidity Ratios CA CR = CL CA - Inv. QR =
Can the company meet its short-term obligations using the resources it currently has on hand?
Current Ratio
Quick Ratio
CR =
QR = CA CL
CA - Inv.
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).

6. Asset Management Ratios
How efficiently does the firm use its assets?
How much does the firm have tied up in assets for each dollar of sales?
Inventory Turnover Ratio
Days Sales Outstanding (DSO), Average Collection Period (ACP)
Fixed Asset Turnover Ratio
Total Asset Turnover Ratio
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).

7. Asset Management Ratios
Inv. turnover =
Sales
Inventories
DSO = =
Receivables
Average sales per day
Sales/365
Fixed assets
turnover
     Sales             
Net fixed assets =
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).
Total assets
turnover
     Sales       
Total assets =

8. Debt Management Ratios
Does the company have too much debt?
Can the company’s earnings meet its debt servicing requirements?
Total Liabilities to Total Assets, Long Term Debt to Total Assets, Debt to Equity Ratio
Times Interests Earned Ratio
EBITDA Coverage Ratio
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).

9. Debt Management Ratios
Total liabilities
Total assets
Debt ratio =
            EBIT        
Int. expense
TIE =
EBITDA Coverage Ratio =
EBIT + Depr. & Amort. + Lease payments
Interest Lease
expense pmt.
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).
Loan pmt.

10. Profitability Ratios What is the company’s rate of return on:
Sales?
Assets?
Profit Margin on Sales
Basic Earning Power
Return on Total Assets
Return on Common Equity
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).

11. Profit Margin Net profit margin (PM): NI PM = Sales
OM =
EBIT
Net profit margin (PM):
Operating profit margin (OM):
Gross profit margin (GPM):
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).
Sales − COGS
Sales
GPM =

12. Basic Earning Power Return on Asset, Return on Equity
BEP =
EBIT
Total assets
ROA = NI
Total assets
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).
ROE = NI
Common Equity

13. Market Values Ratios Price/Earnings Ratio Price/Cash Flow Ratio
Market value ratios incorporate the:
High current levels of earnings and cash flow increase market value ratios
High expected growth in earnings and cash flow increases market value ratios
High risk of expected growth in earnings and cash flow decreases market value ratios
Price/Earnings Ratio
Price/Cash Flow Ratio
Market/Book Value Ratio
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).

14. Market Values Ratios P/E = Price per share EPS Price per share
Cash flow per share
P/CF =
Mkt. price per share
Book value per share
M/B =
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).

15. DU PONT EQUATION
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).

16. ANALYTICAL APPROACHES
Trend Analysis
Common Size Analysis
Percent Change Analysis
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).

17. Limitations Different divisions in different industries
Average is not good enough
Inflation
Seasonal factors
Window dressing
Different accounting practices
What is a good ratio?
Financial statements accuracy
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).

18. Qualitative Factors Dependence on key customer(s)
Dependence on key product(s)
Dependence on key supplier(s)
Competition
Future prospects
Legal & regulatory environment
There are three slightly different versions of the Thales story that I know of (I have no source for the first one). The third listed here seems to agree, in principal, with the first. The second isn’t that different, but it does not describe an option contract. Thales was born in Miletus in Greek Ionia, now part of Turkey.
1) At the time, Thales (pronounced Thay’leez) had been ridiculed as a philosopher whose philosophy was useless. Evidence of this was his extreme poverty. However, because of his extraordinary ability to read the stars, Thales forecast that the autumn olive harvest would be unusually large. He secretly traveled to the olive farmers and purchased the right of first refusal on their olives (a call option). Because this was nine months before the harvest, the farmers were willing to sell this right very inexpensively. Since he was correct, Thales was able to purchase the entire olive crop at the pre-agreed upon price. He now controlled the entire crop, and those who needed olives had to buy them at his price. Apparently, he made a fortune, and quieted his critics.
2) Another version of this story ( has it that Thales purchased outright all of the olive presses before the harvest. In either case, he apparently correctly forecasted the olive harvest and made a fortune on it. This same source relates that Thales was very well respected, and considered to be one of the Seven Sages of ancient Greece. He is credited with the discovery of theorems of elementary geometry. Aristotle related this story of the olive harvest, though I haven’t read Aristotle and cannot say which version is correct.
3) This story is quoted from the Internet Encyclopedia of Philosophy (
“Thales's reputation for wisdom is further enhanced in a story which was related by Aristotle. (Politics, 1259 a 6-23). Somehow, through observation of the heavenly bodies, Thales concluded that there would be a bumper crop of olives. He raised the money to put a deposit on the olive presses of Miletus and Chios, so that when the harvest was ready, he was able to let them out at a rate which brought him considerable profit. In this way, Thales answered those who reproached him for his poverty. As Aristotle points out, the scheme has universal application, being nothing more than a monopoly. There need not have been a bumper harvest for the scheme to have been successful. It is quite likely that Thales was involved in commercial ventures, possibly the export of olive oil, and Plutarch reported that Thales was said to have engaged in trade (Plut. Vit. Sol. II.4).”
Joseph de la Vega wrote about options dominating the trading activities on the Amsterdam exchange in Since Amsterdam was the most important financial center of the time, this must have meant a significant amount of trading.
David A. Dubofsky, “Options and Financial Futures: Valuation and Uses,” 1992, pp. 5-6.
Bachelier (1900) wrote the first paper about the valuation of options in He wasn’t entirely successful, but his ideas helped to form the theory of option pricing and the EMH. He was the first to note that security returns appeared to follow a form of geometric Brownian motion (essentially, a random walk).