Investor Math Basics Flashcards
(20 cards)
Book Value aka accounting value
Shows a c’s net worth
(Total asset - T liabilities) the / by # of shares of common stock outstanding.
This can help u figure out whether the share price (market value) makes sense with the company’s actual intrinsic value.
Experts say to find value stock is to look for cs whose stock price is less than double their book value per share.
Profit margin
Shows what % of sales actually ends up as earnings
income / revenue
Comparing with other periods lets you see a pattern.
eg: if a c has shown profit margins of 10% in past 5 yrs except for 1 quarter where it shrank by 3%, that is different than an average of 10% profit margin that bounces between 3 - 20% over the same period.
Steady/ reliable profitability is desirable.
Helpful to compare cs profit margin to industry avg.
Price volatility aka beta
Refers to how much share price varies
Calculated by looking at the difference between a stock’s high and low prices over a set period of time.
determines risk of potential investment
Beta - used to measure variability compared with the market. compares changes in stock with S&P 500.
Eg,beta 2 means 2x SNP 500, if SNP rises or drops by 20%, that stock will rise or fall by 40%
Par Value
Price you pay to buy the stock certificate
Book Value per share
Amount of money that would be doled out for each share if a c had to fold.
equity = C assets - liabilities
Book value per share = equity/ total # of common shares outstanding
Market value
Price you pay to buy shares
affected by name recognition
recognizable employees
competitiove barriers
Stock Tables (ST) 52-wk high-low
shows the highest and lowest prices for which the stock was traded over 52 weeks.
Volume (VOL) (ST)
how many shares were traded that day in multiples of 100
Average Volume (ADTV) (ST)
avg # of shares that were traded that day
Add up total # of shares traded over a period of time / number of days
Beta (ST)
volatility of c’s share in comparison to whole market
a beta greater than 1 suggests the stock is more volatile than the broader market. less than 1 = less volatile
More for short term than long term
Price to earnings ratio (P/E) (ST)
Most widely used valuation measure
Assess whether the stock is over or undervalued
closing price / EPS Earning per share nimber
High PE means that investors are expecting higher earnings growth in the future compared to cs with low PE
low PE indicates either c is undervalued or that it is doing exceptionally well
Many stocks can have the same PE ratio but difference in price + earnings
eg: one stock trades for 30usd per share and posts 1.5 USD per share - a ratio of 20
60 USD stock and 3 USD earning also has a ratio of 20
+ compare with PE of other comps in the same industry
Low Pe: in debt or undervalued
High PE: overpriced or dependable future growth bc of expansion - good for growth investors.
Beta
volatility of c’s share in comparison to whole market
a beta greater than 1 suggests the stock is ore volatile than the broader market. less than 1 = less volatile
More for short term than long term
Price to earnings ratio (P/E) (ST)
Most widely used valuation measure
Assess whether the stock is over or undervalued
closing price / EPS Earning per share nimber
High PE means that investors are expecting higher earnings growth in the future compared to cs with low PE
low PE indicates either c is undervalued or that it is doing exceptionally well
Earnings per share (EPS TTM)
comapny profit/ outstanding shares of common stock
Resulting number indicates the c’s profitability
TTM: Trailing 12 months
In theory, high EPS means c is valuable
Earnings date
The date of the next release of a c’s financial report
Forward Dividend yield
estimation of yr’s dividend expressed as a % of curen stock price
yrs worth of future dividend payments/ stock current stock price
Ex Dividend Date
The date on or after which a security is traded w/o a previously declared dividend or distribution
If you purchase a stock on its ex d date or after. you don’t receive the dividend, the seller gets it. So buy before
1 year target ratio
price analysts predict the stoc will be in one yr, its a guess
PEG ratio
Price to earnings give investors glimpse into c’s potential for growth
Divide Pe by EPS
low PEG ratios can indicate undervalued stock
Use it to compare stocks with diff price + earnings pictures to see which makes more sense for the investment strategy.
Eg: ABC and SNP have a PE ratio of 200 and earnings growth of 40%
XYZ has a PE of 0 and 10% earnings growth
PEG for ABC 5(200/40)
PEG for XYZ 4(40/10)
XYz has better PEG ratio bc investors are paying less for expected future growth
Total return
Dividends are just as important in changes in price
Eg: u buy stock for 45usd and per share u receive 1.5usd dividend for a 12 month period
At the end of the period, the stock sells for 48usd
-first add the change in stock price (or subtract if the price has gone down) since the beginning of the yr to the dividends you’ve earned in the past 12 months.
then divide that by stock price at the beginning of 12 month period
Eg stock bought for 45$
receive 1.5$ div for the next 12 months
At the end of the period, stock is sold for 48 USD
DividendL 1.5 + Change 3 = 4.5
4.5/45 (org) = 10% = total return
