Financial statement analysis and common stock valuation

Capital Asset Pricing Model (CAPM)

CAPM is a theory concentrated with deriving the expected rates of return on risky assets based on the assets’ systematic risk levels. Systematic risk is the variability of returns that is due to macroeconomic factors that affect all risky assets. It cannot be eliminated by diversification.

• Rates of Return
• Variance and Covariance
• Systematic Risk (β) Estimation
• Expected Rate of Return

Analysis of Profitability Ratios

Measures the income of Eaton Corp. plc relative to its revenues and invested capital.

• Profitability Ratios (Summary)
• Gross Profit Margin
• Operating Profit Margin
• Net Profit Margin
• Return on Equity (ROE)
• Return on Assets (ROA)

Balance Sheet: Assets

The assets reports major classes and amounts of resources owned or controlled by Eaton Corp. plc.

Analysis of Reportable Segments

Eaton Corp. plc operates in 5 segments: Electrical Americas; Electrical Global; Aerospace; Vehicle; and eMobility.

• Segment Profit Margin
• Segment Return on Assets (Segment ROA)
• Segment Asset Turnover
• Segment Capital Expenditures to Depreciation
• Net sales
• Segment operating profit (loss)
• Identifiable assets
• Capital expenditures for property, plant and equipment
• Depreciation of property, plant and equipment

DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin

An approach to decomposing Eaton Corp. plc return on equity, return on assets, and net profit margin ratio as the product of other financial ratios.

• Two-Component Disaggregation of ROE
• Three-Component Disaggregation of ROE
• Five-Component Disaggregation of ROE
• Two-Component Disaggregation of ROA
• Four-Component Disaggregation of ROA
• Disaggregation of Net Profit Margin

Enterprise Value (EV)

Enterprise value is total company value (the market value of common equity, debt, and preferred equity) minus the value of cash and short-term investments.

• Current EV
• Historical EV

Price to FCFE (P/FCFE)

Free cash flow to equity is the cash flow available to Eaton Corp. plc equity holders after all operating expenses, interest, and principal payments have been paid and necessary investments in working and fixed capital have been made.

• Free Cash Flow to Equity (FCFE)
• P to FCFE Ratio, Current
• P to FCFE Ratio, Historical

Enterprise Value to EBITDA (EV/EBITDA)

To calculate EBITDA analysts start with net earnings. To that earnings number, interest, taxes, depreciation, and amortization are added. EBITDA as a pre-interest number is a flow to all providers of capital.

• Earnings before Interest, Tax, Depreciation and Amortization (EBITDA)
• EV to EBITDA Ratio, Current
• EV to EBITDA Ratio, Historical

Common Stock Valuation Ratios
Quarterly Data

Relative valuation technique determine the value of Eaton Corp. plc by comparing it to similar entities (like industry or sector) on the basis of several relative ratios that compare its stock price to relevant variables that affect the stock value, such as earnings, book value, and sales.

• Historical Valuation Ratios (Summary)
• Price to Earnings (P/E)
• Price to Operating Profit (P/OP)
• Price to Sales (P/S)
• Price to Book Value (P/BV)

Analysis of Debt

• Total Debt (Carrying Amount)
• Total Debt (Fair Value)
• Weighted-average Interest Rate on Debt

Analysis of Long-term (Investment) Activity Ratios

Measures how efficiently Eaton Corp. plc generates revenues from its investments in fixed or total assets.

• Long-term Activity Ratios (Summary)
• Net Fixed Asset Turnover
• Net Fixed Asset Turnover (including Operating Lease, Right-of-Use Asset)
• Total Asset Turnover
• Equity Turnover

Analysis of Profitability Ratios
Quarterly Data

Measures the income of Eaton Corp. plc relative to its revenues and invested capital.

• Profitability Ratios (Summary)
• Gross Profit Margin
• Operating Profit Margin
• Net Profit Margin
• Return on Equity (ROE)
• Return on Assets (ROA)