Page 238

company is using the stockholder’s equity to produce profits. The higher this number, the more effective the company is in generating profits using its shareholder’s equity. This value is normally higher than return on assets, as the shareholders equity is a subset of a company’s assets. For example, the return on equity ratios for CSX and Microsoft are 3.1% and 33.8% respectively.

Miscellaneous

Not all companies operate the same way, therefore there are some fundamental categories that may apply to some but not others. Here I present a couple of popular examples of industry-specific fundamental analyses.

Same Store Sales — When retailers such as Kmart, Wal-Mart, Sears, or Nordstrom report their earnings, they also usually include an item titled “same store sales” in addition to their total sales from all their stores. The same store sales refers to the stores that have been open for business for at least one year and it provides investors with an apples-to- apples measurement of the retailer’s viability. New stores are excluded from this figure since they usually have associated opening costs and do not have an annual sales record. Comparing the year-overyear (or quarter-over-quarter) same store sales numbers of a company in relation to the whole industry, investors can make deductions on the retailer’s growth prospects (or lack thereof) as well as that for the whole industry.

Book-To-Bill Ratio — This is a ratio of the amount of orders a company has received to the amount of orders that it has shipped. A book-to-bill ratio of one indicates that the company is basically busy and it is selling products at a continuous rate but not necessarily growing. A value of less than one indicates a potential slowdown in …