Investors should familiarize themselves with the following ratios as they could prove to be extremely useful and helpful in the selection process. Understanding what these ratios mean could make the difference between investing in a champion or a dud.

**Enterprise value** is a combination of the market cap, debt, minority interests, preferred shares less total cash and cash equivalents. This provides a better picture because it is a more accurate representation of a company's value contrary to simply looking at the Market cap.

**Operating cash flow** is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt; the cash flow is what pays the bills.

**The payout ratio** tells us what portion of the profit is being returned to investors. A pay out ratio over 100% indicates that the company is paying out more money to shareholders, then they are making; this situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for sometime. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever; if your tolerance for risk is a low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest 5 Splendid Plays With Superb Yields As High As 7.5%

**Debt to Equity Ratio** is found by dividing the company's total amount of long-term debt (debts with interest rates that have a maturity longer than one year) by the total amount of equity. A debt to equity ratio of 0.5 tells us that the company is using 50 cents of liabilities in addition to each $1 dollar of shareholders equity in the business. There is no fixed ideal number as it depends on the industry the company is in. However, in general a ratio under 1 is acceptable and ideally it should be in the 0.5-0.6 ranges.

**Current Ratio** is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardizing their future earnings. Ideally the company should have a ratio of 1 or higher.

**Interest coverage** is usually calculated by dividing the earnings before interest and taxes for a period of 1 year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. **For example if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits**.

**Quick ratio or acid -test** is obtained by adding cash and cash equivalents plus marketable securities and accounts receivable dividing them by current liabilities. It is a measure of a company's ability to use its quick assets (assets that can be sold of immediately at close to book value) to pay off its current liabilities immediately. A company with a quick ratio of less than 1 cannot pay back its current liabilities. Additional key metrics are addressed in this article 5 Superb Dividend Plays

**Chevron Corporation (NYSE:CVX) is our favorite play for the following reasons;**

It has a huge free cash flow of $40 billion

A good 5 year dividend growth rate of 8.19%

A very low payout ratio of 23%

A 3 year total rate of return of 63%

Has been paying dividends since 1912

Consecutively increased dividend payments for 19 years

An incredibly strong interest coverage ratio of 1951

A LT Debt to Equity of 0.08

A good quick and current ratio of 1.3 and 1.6 respectively

Net income and operating cash flow have both been generally trending upwards for the past 3 years. They have surged explosively in 2011.

100 invested in CVX for 10 years would have grown to 283K

Stock |
Dividend Yield (%) |
Market Cap |
Forward PE |
EBITDA |
Quarterly Revenue Growth |
Beta |
Revenue |
Operating Cash flow |

ABT |
3.50 |
87.05B |
10.44 |
11.12B |
4.10% |
0.30 |
38.85B |
N/A |

CVX |
3.10 |
211.81B |
8.06 |
51.10B |
13.30% |
0.78 |
236.29B |
N/A |

BMY |
4.30 |
54.39B |
16.54 |
7.75B |
6.70% |
0.50 |
21.24B |
N/A |

DUK |
4.80 |
28.29B |
14.84 |
4.97B |
0.50% |
0.35 |
14.31B |
3.88B |

PFE |
4.20 |
163.92B |
9.11 |
27.50B |
-4.60% |
0.70 |
67.42B |
N/A |

**Abbott Laboratories (NYSE:ABT)**

Industry : Pharmaceuticals

Free cash flow= $8.37 billion

Net income for the past three years

2008 = $4.89 billion

2009 = $5.75 billion

2010 = $4.63 billion

2011= it stands at $3.1 billion and could come in as high as $4 billion.

Total cash flow from operating activities

2008 = $7.35 billion

2009 = $7.28 billion

2010 = $8.74 billion

2011= it stands at $7 billion and could come in as high as $10.6 billion.

Key Ratios

P/E Ratio = 18.4

P/E High - Last 5 Yrs = 25.8

P/E Low - Last 5 Yrs = 11.2

Price to Sales = 2.22

Price to Book = 3.51

Price to Tangible Book = -35.69

Price to Cash Flow = 11.3

Price to Free Cash Flow = 19.1

Quick Ratio = 1

Current Ratio = 1.5

LT Debt to Equity = 0.53

Total Debt to Equity = 0.68

Interest Coverage = 10

Inventory Turnover = 3.8

Asset Turnover = 0.7

ROE = 20.05%

Return on Assets = N/A

200 day moving average = 53.07

Total debt = 16.72B

Book value = 15.79

Qtrly Earnings Growth = 12.4%

Dividend yield 5 year average = 3%

Dividend rate = $ 1.92

Payout ratio = 62%

Dividend growth rate 3 year avg = 10.07%

Dividend growth rate 5 year avg = 9.65%

Consecutive dividend increases = 39 years

Paying dividends since = 1926

Total return last 3 years = 10.56%

Total return last 5 years = 20.23%

**Notes**

Net income and operating cash flow have generally been trending upwards for the past 3 years; it has a good interest coverage ratio, a decent quick ratio and a good current ratio. In terms of dividend payments it's a dividend champ as it has consecutively increased the dividend for 39 years.

**Chevron Corporation (CVX)**

Industry : Refining & Marketing

Free cash flow= $40.2 billion

Net income for the past three years

2008 = $23.94 billion

2009 = $10.49 billion

2010 = $19.03 billion

2011= it stands at $21 billion and could top the $30 billion mark.

Total cash flow from operating activities

2008 = $29.64 billion

2009 = $19.38 billion

2010 = $31.36 billion

2011= It stands at $32 billion and could top the $42 billion mark

Key Ratios

P/E Ratio = 7.8

P/E High - Last 5 Yrs = 15.2

P/E Low - Last 5 Yrs = 4.8

Price to Sales = 0.85

Price to Book = 1.73

Price to Tangible Book = 1.8

Price to Cash Flow = 5.2

Price to Free Cash Flow = 32.1

Quick Ratio = 1.3

Current Ratio = 1.6

LT Debt to Equity = 0.08

Total Debt to Equity = 0.08

Interest Coverage = 1951

Inventory Turnover = 27.2

Asset Turnover = 1.3

ROE = 23.75%

Return on Assets = N/A

200 day moving average = 101.19

Total debt = 9.74B

Book value = 60.7

Qtrly Earnings Growth = -3.2%

Dividend yield 5 year average = 3.3%

Dividend rate = $ 3.24

Payout ratio = 23%

Dividend growth rate 3 year avg = 6.98%

Dividend growth rate 5 year avg = 8.19%

Consecutive dividend increases = 19 years

Paying dividends since = 1912

Total return last 3 years = 63.13%

Total return last 5 years = 66.3%

**Bristol-Myers Squibb Co. (NYSE:BMY)**

Industry : Pharmaceuticals

Free cash flow= $4.59 billion

Net income for the past three years

2008 = $5.25 billion

2009 = $10.62 billion

2010 = $3.11 billion

2011= It stands at $2.9 billion and could top $3.8 billion

Total cash flow from operating activities

2008 = $3.71 billion

2009 = $4.07 billion

2010 = $4.5 billion

2011= It stands at $3.2 billion and could top $4.7 billion

Key Ratios

P/E Ratio = 14.8

P/E High - Last 5 Yrs = 29.7

P/E Low - Last 5 Yrs = 6.1

Price to Sales = 2.54

Price to Book = 3.26

Price to Tangible Book = 6.91

Price to Cash Flow = 12

Price to Free Cash Flow = 42.4

Quick Ratio = 1.6

Current Ratio = 2

LT Debt to Equity = 0.33

Total Debt to Equity = 0.34

Interest Coverage = 39.8

Inventory Turnover = 3.6

Asset Turnover = 0.7

ROE = 32.8%

Return on Assets = N/A

200 day moving average = 31.56

Total debt = 5.62B

Book value = 9.78

Qtrly Earnings Growth = 76.4%

Dividend yield 5 year average = 5%

Dividend rate = $ 1.36

Payout ratio = 61%

Dividend growth rate 3 year avg = 2.37%

Dividend growth rate 5 year avg = -2.77%

Consecutive dividend increases = 2 years

Paying dividends since = 1900

Total return last 3 years = 64.32%

Total return last 5 years = 37.31%

**Notes**

The net income has been slightly erratic but operating cash flow has been trending upwards for the past 3 years. It has a great interest coverage ratio of 39.8, a good quick and current ratio of 1.6 and 2.00 respectively. It also sports a manageable payout ratio.

**Duke Energy Corp (NYSE:DUK)**

Industry : Electric Utilities

Free cash flow= $-444 million

Net income for the past three years

2008 = $1.37 billion

2009 = $1.08 billion

2010 = $1.32 billion

2011= It stands at $1.4 billion and could top $1.9 billion

Total cash flow from operating activities

2008 = $3.33 billion

2009 = $3.47 billion

2010 = $4.52 billion

2011= It stands at $3.1 billon and could top the $4.5 billion mark.

Key Ratios

P/E Ratio = 15.1

P/E High - Last 5 Yrs = 21.6

P/E Low - Last 5 Yrs = 10

Price to Sales = 1.9

Price to Book = 1.22

Price to Tangible Book = 1.5

Price to Cash Flow = 7.2

Price to Free Cash Flow = -15.2

Quick Ratio = 0.8

Current Ratio = 1.2

LT Debt to Equity = 0.77

Total Debt to Equity = 0.84

Interest Coverage = 4.2

Inventory Turnover = 6.6

Asset Turnover = 0.2

ROE = 8.21%

Return on Assets = 3.11%

200 day moving average = 20.18

Total debt = 20.11B

Book value = 17.11

Qtrly Earnings Growth = -29.6%

Dividend yield 5 year average = 5.4%

Dividend rate = $ 1.00

Payout ratio = 71%

Dividend growth rate 3 year avg = 3.03%

Dividend growth rate 5 year avg = 3.1%

Consecutive dividend increases = 4 years

Paying dividends since = 1926

Total return last 3 years = 61.4%

Total return last 5 years = 27.85%

**Pfizer Inc (NYSE:PFE)**

Industry : Pharmaceuticals

Free cash flow= $19.6 billion

Net income for the past three years

2008 = $8.11 billion

2009 = $8.64 billion

2010 = $8.26 billion

2011= It stands at $8.5 billion and could come in as high as $12 billion

Total cash flow from operating activities

2008 = $18.24 billion

2009 = $16.59 billion

2010 = $11.46 billion

2011= It stands at $14.9 and come in as high as $19 billion

Key Ratios

P/E Ratio = 16.5

P/E High - Last 5 Yrs = 23.7

P/E Low - Last 5 Yrs = 9.4

Price to Sales = 2.41

Price to Book = 1.8

Price to Tangible Book = -14.75

Price to Cash Flow = 8.1

Price to Free Cash Flow = 13.2

Quick Ratio = 1.9

Current Ratio = 2.3

LT Debt to Equity = 0.39

Total Debt to Equity = 0.46

Interest Coverage = 7.5

Inventory Turnover = 1.4

Asset Turnover = 0.4

ROE = 9.78%

Return on Assets = N/A

200 day moving average = 19.62

Total debt = 41.05B

Book value = 11.71

Qtrly Earnings Growth = -50.2%

Dividend yield 5 year average = 5.1%

Dividend rate = $ 0.88

Payout ratio = 63%

Dividend growth rate 3 year avg = -8.5%

Dividend growth rate 5 year avg = -6.91%

Consecutive dividend increases = 1 years

Paying dividends since = 1901

Total return last 3 years = 60.01%

Total return last 5 years = -2.75%

**Notes**

Net income and cash flow are set to explode in 2011; both have been trending upwards for the past 3 years. It has a manageable payout ratio of 63%, a good quick ratio of 1.9, a strong current ratio of 2.3 and an above average interest coverage ratio of 7.5.

*EPS charts were sourced from zacks.com and dividend history charts were sourced from dividata.com*

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.

**Disclosure: **I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.