Interpretation of KCV values
Ultimately, what is the point of purely numerical values if they cannot be put into context? In this field there are any number of possible interpretations, which is why there are numerous forecasts.
The lower the KCV value, the more favourable the share. A high value, on the other hand, speaks for an expensive price, with weak earnings power at the same time.
It is thus an important indicator for shareholders. Different companies can be valued not only according to their level of turnover, but also according to their economic performance. While the price-earnings ratio in Singapore Exness merely puts the annual profit in relation to the share price, the KCV value can provide information about the success of the core business. Thus, two companies with high turnover and identical annual profits can be analysed for their profitability and liquidity.
The real company value
In order to interpret the values and compare them with others, it is important to pay attention to shares that come from one industry. A cross-industry comparison does not make sense and will not be meaningful. This is because each industry has its own earnings values that are classified as "good" or "bad". For a comprehensive comparison within an industry, it is advantageous to mathematically calculate a median. Investors can calculate the mean value of the cash flow from companies in an industry. Based on this median, individual companies can be compared in terms of their earnings power. A median gives the price-cash flow ratio more significance.
Through interpretation, it is possible to find valuable companies that stand out from the crowd and whose core business outperforms other companies. Ideally, these companies are not yet perceived as such by other shareholders, so that the share price is favourable in relation to the cash flow. Certainly, companies with a lot of potential cannot be identified with just a formula, but the KCV value nevertheless offers a good approach. The price-to-cash-flow ratio is thus an important component of fundamental analysis, which value investors in particular use for their strategies. Investors can fathom and also interpret the intrinsic substantial value with different calculations.
Shareholders should always pay attention to the sources of information when interpreting and critically question statements in forums or other financial platforms. If a shareholder forecast is made, it is important to check to what extent the action is impartial. Often, certain sources of information are financed by the companies themselves in order to suggest a positive balance sheet to shareholders.
Investors reports
Investors can find reliable figures in quarterly reports and so-called ad hoc news. Here, companies are not allowed to spread misleading or ambiguous false reports. Companies listed in the Prime Standard on the stock exchange are legally obliged to disclose important key figures promptly. This may be the case, for example, if the company will suffer financial losses in the future.
If investors want to analyse the price-cash flow ratio on their own, it is important to understand the company's core business. Star investor Warren Buffet did not say for nothing: "Only invest in a stock whose business you also understand." Otherwise it will be difficult to put the figures into a logical context. The stock market is a highly complex interplay of various factors that influence each other. Good companies cannot be found with pure mathematics. Investors should compare the price-cash flow ratio with many other factors.
