Page 8 - Evaluation - The Studies continued   [3 Go Back] 

The Earnings Study
        Theoretically, Earnings are the difference between the cost to provide a product or service, and the revenue generated by that product or service. When investigating a Company's Earnings, be skeptical of a sudden spike, it could simply be a windfall profit from a lucrative investment or the sale of some property. Changes in Earnings due to a one time event like this is not a reflection of the Company's long term prospects. Thankfully, the accounting industry and the SEC are working on guidelines that will help standardize the reporting of this data. 
        Trends to be looking for include a steady or increasing Growth rate. Earnings trends usually should be confirmed by similar trends in the Sales data, and sometimes the Cash Flow data. This type of confirmation often detects an increase in Earnings due to cost cutting measures, which are rarely repetitive  occurrences. When reviewing any reports on the Company, keep an eye out for footnotes, they can sometimes shed light on aberrations in the Earnings data.

Earnings Study Control and Graph Elements
        As with the Cash Flow Study, this Study opens with the default of twp graphs sharing the space beneath the tool bar. In the upper, 'EPS Graph', the Earnings data is illustrated using a blue dotted line with blue squares as hatch marks.

        The lower graph, called 'Profit Margin Graph' only displays years of data to be graphed, no future years being shown. The gray solid line with black squares indicating years, is the Profit Margin graph, calculated by dividing the Yearly Earnings by the Yearly Sales from the Data Entry page. This graph does not directly effect Future Projection calculations, and is provided for informational value only. Profit Margin is a gauge of how efficiently a company is operating. When increasing, it means a company is making greater profits on each dollar of sales. Needless to say, an increasing Profit Margin is a desirable attribute. Beware a decreasing trend.

Evaluating the Earnings Data
        For the second time, the trend portrayed by the default settings of Equity Evaluator appear to be a fair assessment of Johnson Controls current and future trends. The Profit Margin graph suggests the recent spike in earning and the corresponding spike in margins could be due to cost cutting or another factor that will not repeat, yet the over all trend in Profit Margins is in the right direction and encouraging.

Future Projections for the Earnings Study Evaluation
        For calculating future Stock prices in the Earnings Future Projections, Equity Evaluator multiplies the average Stock Price/Earnings ratio, (derived from the historic data), times the Earnings projections. These are posted adjacent to the yellow dots on the EPS Graph of the Study. 

        The resultant projected Stock prices are then used in The Future Projection computations. To review the means by which the percentile values are calculated, go back to the 'Future Projection' discussion that can be found in the Table of Contents under 'Individual Studies', 'Stock Price Study'.