Unit 6: Analyzing Common Stock Notes

UNIT 6: Analyzing Common Stocks

Mr. ElsesserWall Street I

How do we Analyze Common Stock?

REVIEW:REVIEW: Fundamental Analysis Technical Analysis

Uses a corporation’s financial data to evaluate its stock and help predict the future market of the stock. Data Examples:

Income Statements Balance Sheets

How is the Fundamental Analyses carried out? There are 4 ways to compute a

Fundamental Analysis: Earnings per Share (EPS) Price to Earnings Ratio (P/E Ratio) Dividend Yield Revenue per Employee

Each only makes the most meaningful sense when compared to other corporations in its industry.

This is the amount of net income a corporation makes per share of outstanding stock.

EPS = Net Income# of Shares Outstanding

A Low EPS indicates that the corporation is not making much money.

A High EPS indicates that the corporation is making large profits.

This is the market closing price of a share divided by the EPS.P/E Ratio = Market Closing Price

Earning per Share

This tells the investor how much they would have to pay to “buy” one dollar of earnings. Ex. P/E Ratio = 10, that means the investor is

willing to pay 10 times the EPS for the stock P/E is usually under 20. Rule of Thumb: The higher a company’s P/E

multiple, the riskier the investment (overpriced).

This is the annual dividend per share, times 100, divided by the market price.

Dividend Yield = Annual dividend per share X100

Market closing price

This tells the investor how much of their stock purchase they will receive in dividends each year.

This is the amount of money a corporation makes per employee.

Revenue Total Revenue per Employee = # of Employees

This tells the investor which corporations

are running most efficiently. A higher result shows greater efficiency.

Concentrates on charting stock prices, trends in the market, and patterns in the indices and with the averages to predict future performance. Ex. DJIA, S&P, Consumer Price Index

(CPI), Bollinger Bands.