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Lesson 12. Evaluating Stocks > The Price/Earnings Ratio - Pg. 73

Evaluating Stocks 73 Frankly, few of us enjoy math, but as you can see, through its use you can uncover a substantial amount of incredibly valuable information. As finance, investment, and money are all measured numerically, numbers will provide the best overall picture of a stock's performance. In addition, the number of formulas you need to extract the most representative view are neither complicated nor many in number. For these reasons, the math part of your stock research should never be minimized or avoided. The time and effort you invest in your research will directly pay off in the potential for your cash investment to flourish. The 30-Second Recap · Researching stock through the use of math will enable you to project its future performance by viewing its past performance. The amount of math necessary to do this is minimal and the for- mulas required are not complicated. · Price-to-earnings ratios are one of three percentages determined by comparing the current market of the stock to its dividends over the last four calendar quarters (trailing), the preceding four actual quarters (standard), or the last two actual quarters and two future projected quarters. · The earnings per share formula enables you to determine the amount of the stock's dividend by dividing the total amount of the issuing company's net earnings by the total number of outstand- ing common shares. · Current/dividend yields measure the percentage of the stock's annual divided payments as compared to its market value. This information will enable you to determine how much profit the stock has made as a percentage of its initial purchase cost. · Current ratio is a measurement of how likely and how much an investor would be able to recoup in the case of a company's insolvency (bankruptcy). It is determined by dividing a company's assets by it's liabilities.