top of page

The Basics

Market Cap 

Market Cap, short for Market Capitalization, is the "value of a company on the open market."

  • Large Cap: Market Value of $10 billion or more; generally mature well-known companies within established industries.

  • Mid Cap: Market Value between $3 billion and $10 billion; typically established companies within industries experiencing or expected to experience rapid growth.

  • Small Cap: Market Value of $3 billion or less; tend to be young companies that serve niche markets or emerging industries. (Higher risk, more volatile)

  • Current Stock Price x Total # of Outstanding Shares = Market Cap

https://www.merrilledge.com/article/company-size-why-market-capitalization-matters-ose

Day Range 

The lowest to highest price the stock fluctuated in a given day

Example: [lowest price] $14.28-$14.70 [highest price]

  • 52-Week Range: The lowest to highest price the stock fluctuated in a given 52 weeks

        Example: [lowest price] $6.98-$15.95 [highest price]

Price to Earnings (P/E) Ratio 

Also known as a "Price Multiple", it allows analysts to determine if the share price accurately represents the projected earnings per share. 

P/E Ratio = Current Share Price / Earnings per Share(EPS)

  • Trailing vs Forward

    • Trailing P/E Ratio: Current Share Price / Total EPS earnings over the past 12 months (may be written as P/E (TTM).

    • Forward P/E Ration: Uses future earnings projections rather than past EPS. Also called "estimated price to earnings". 

      • Forward P/E ratios can be inaccurately projected by a company so they can surpass their goal when actual earnings are established ​

The Price to Earnings Ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that companies earnings 

  • If the P/E Ratio is 20x, it indicated an investor is willing to pay $20 for every $1 of current earnings

https://www.investopedia.com/terms/p/price-earningsratio.asp

Earnings Per Share (EPS)

Displays how much money a company makes for each share of its stock. EPS is an indicator of a companies profitability; it is a good metric for estimating the corporate value of a company.

  • EPS = Companies Net Profit / Outstanding Shares of Common Stock

  • A higher EPS indicates greater value because investors will pay more for a companies shares if they think the company has higher profits relative to its share price 

Different forms to be aware of:

  • Excluding extraordinary items or discontinued operations, or on a diluted basis.

  • **NEEDS TO BE FINISHED**

  • Basic EPS: Basic Earnings per Share is a rough measurement of the amount of a companies profit that can be allocated to one share of its common stock. Businesses with simple capital structures, where only common stock has been issued, need only release this ratio to reveal their profitability.

  • Diluted EPS: Diluted EPS is considered to be a more precise metric than basic EPS. Diluted EPS takes into account all of the outstanding dilutive securities that could potentially be exercised (such as stock options and convertible preferred stock) and shows how such an action would affect earnings per share.

  • Companies with a complex capital structure must report both diluted and basic EPS to provide a more accurate picture of earnings.

https://www.investopedia.com/terms/e/eps.asp

Dividends & Open Price

Dividend

A dividend is the distribution of some of a companies earnings to a class of its shareholders , as determined by the companies board of directors.

  • Dividends may be paid out as cash or in the form of additional stock, this can usually be determined by the investor and whether or not they choose to reinvest their dividend earnings.

  • A dividend is a token reward paid to the shareholders for their investment in a company’s equity, and it usually originates from the company's net profits. While the major portion of the profits is kept within the company as retained earnings–which represent the money to be used for the company’s ongoing and future business activities–the remainder can be allocated to the shareholders as a dividend.

https://www.investopedia.com/terms/d/dividend.asp

Dividend Yield

Expressed as a percentage, it is a financial ratio (dividend/price) that shows how much a company pays out in dividends each year relative to its stock price. 

Dividend Yield = Annual Dividends per Share / Price per Share 

  • Assuming the dividend stays the same, the yield will increase as the price of the stock falls and inversely will fall when the price of the stock rises.

  • New companies that are relatively small, but are still growing quickly, may pay a lower average dividend than mature companies in the same sectors. In general, mature companies that aren't growing very quickly pay the highest dividend yields. 

https://www.investopedia.com/terms/d/dividendyield.asp  

Open Price

The share price at which a stock starts at the open of the market on a given day. 

Trading Floor
Stock Exchange

Volume 

Volume 

In investing, volume is the number of shares changing hands or transactions executed in a particular security or market during a specific period of time. It is typically measured for each trading day.

  • Example: Imagine there are two trades on Tuesday in shares of a clothing retailer, one for 500 shares and the other for 1,000 shares. Therefore, the total volume for that stock on Tuesday was 1,500. Investors might look at this share volume, along with the stock’s price and other factors, to determine whether they want to purchase shares of the retailer’s stock. 

  • Takeaway: Looking at the volume of a company’s stock is like looking at the sales in a store. A higher volume of sales in a store is a sign that the products the store is selling are in demand. Similarly, the volume of a company’s stock tells investors how much in demand its stock is and how easily they may be able to buy or sell the shares. 

https://learn.robinhood.com/articles/4iYSBWWZnFDKMWHdXvNfQE/what-is-volume/

Average Volume 

The average number of shares traded within a given period of time. 

  • Calculate average daily trading volume by adding up trading volume over the last X number of days. Then, divide the total by X. For example, sum the last 20 days of trading volume and divide by 20 to get the 20-day ADTV (Average Daily Trading Volume)

  • Average Volume will not always be indicated in terms of daily trades. For example, depending on where you do your stock research, some sites may have an average volume over different time periods (MarketWatch has an average  volume period of 65 days.) 

https://www.investopedia.com/terms/a/averagedailytradingvolume.asp

Beta & Risk  

Beta 

Beta is a measure of volatility, or systematic risk, of an individual stock or an entire portfolio relative to the entire market.

  • Beta Value Less than One 

    • A beta ​value that is less than 1.0 means that the security is theoretically less volatile than the market. Including this stock in a portfolio makes it less risky than the same portfolio without the stock. For example, utility stocks often have low betas because they tend to move more slowly than market averages.

  • Beta Value Greater than One 

    • A beta that is greater than 1.0 indicates that the security's price is theoretically more volatile than the market. For example, if a stock's beta is 1.2, it is assumed to be 20% more volatile than the market. Technology stocks and small cap stocks tend to have higher betas than the market benchmark. This indicates that adding the stock to a portfolio will increase the portfolio’s risk but may also increase its expected return.

  • Negative Beta Value 

    • Some stocks have negative betas. A beta of -1.0 means that the stock is inversely correlated to the market benchmark. This stock could be thought of as an opposite, mirror image of the benchmark’s trends.

https://www.investopedia.com/terms/b/beta.asp

Risk 

 

  • Systematic risk: risk associated with the entire market. The 2008 financial crisis is an example of an entire market suffering from a “systematic risk event” this is something that even diversification is difficult to prevent.

 

  • Unsystematic risk: risk associated with an individual stock or industry. For example, the introduction of an alternative energy source would cause the entire gas and oil industries to decline. 

 

Stocks
bottom of page