👉 Dollar math is a method for understanding and visualizing the relationship between different financial metrics, particularly earnings per share (EPS), price-to-earnings ratio (P/E), and free cash flow. It simplifies complex financial data by expressing these metrics in terms of a dollar amount, making it easier to compare companies of different sizes or industries. For instance, instead of comparing EPS directly, one might look at the dollar EPS (EPS in dollars), which is calculated by dividing net income by the number of outstanding shares and then multiplying by 100. Similarly, the P/E ratio can be expressed as a dollar figure by dividing the market price per share by the EPS. This approach allows investors to quickly grasp the intrinsic value of a company relative to its earnings and market price, facilitating more informed investment decisions. By focusing on dollar amounts, dollar math helps to strip away the complexities of financial jargon and provides a clearer picture of a company's financial health and potential.
