What is a Tear Sheet?
In the world of finance, a tear sheet provides a one-page summary of the company with information such as Market Price, 52-week High and Low, Market Capitalization, Enterprise Value, Analyst Recommendation, Revenue, EBITDA, Valuation, Workforce Size, Share Price Movement, etc.
Tear sheets are also known as “Fact Sheets” and help an investor understand the financials and prevailing valuations of a public company. The term Tear Sheet is derived from an old practice when stockbrokers used to tear and give a sheet to the investor as a stock recommendation.
Sample tear sheet for Amazon.com Inc. from Thomson Reuters Eikon:
Contents of a Tear Sheet
- Basic Financial Profile – The topmost section of the sheet gives general information about the company’s stock such as the last closing price, 52-week high and low, market capitalization, total shares outstanding, enterprise value, the beta of the stock, etc. The basic idea is to get a good understanding of the valuation of the company and the range the stock price trades in.
- Analyst Recommendation – It shows the number of equity research analysts who are tracking the stock and their expectations on its performance. The analysts do an in-depth evaluation of the company, including its valuation, to come out with an equity research report and comment on whether it’s time to buy or sell. Some of the popular analysts include Goldman Sachs, Morgan Stanley, Piper Jaffray, Credit Suisse, Jefferies, Barclays, etc.
- Estimates – This section gives the analysts’ mean estimates with respect to sales, EBITDA, and EPS. It also shows the highest and lowest estimates as per analyst research reports.
- Valuation Ratios – It is something that is very important from an M&A perspective, as it measures the key ratios for comparison purposes. It gives ratios like P/E, EV/Revenue, EV/ EBITDA based on last year, current year, and on the next year’s estimates.
- Employee Data – It contains information like the total number of employees, employee growth, and revenue per employee. Revenue/Employee will generally be higher in product companies compared to service industries as they rely more on human capital.
- Abbreviated Financials – It gives a bird’s eye view of all three components of financial statements. It contains the income statement, balance sheet, and cash flow statement. It gives the overall numbers that are relevant for a quick analysis such as sales, gross profit, EBITDA, pretax income, and net income. The Balance Sheet contains details about fixed assets, cash, total assets, long-term debt, current liabilities, and shareholders’ equity. It also contains a break-up of cash flow from operating, investing, and financing activities, which is crucial to understanding the company’s cash flow.
- Stock Performance – It shows the return generated by the stock over 1-month, 3-month, 6-month, and 12-month periods.
- Profitability – There are various measures of profitability (such as net income) that are important to different industries. A complete snapshot of the same is given for a quick analysis. The kind of return generated on assets and equity is also given with a 5-year average to provide insights on historical performance.
- Sales by Region – This shows geographical mix, i.e. what region where the company is getting what percentage of total sales.
- Price by Chart – The last chart shows stock price movement over a 2-year period with the volumes of trade and 50-day and 200-day moving average.