To calculate Beta or (β) you need to divide the variance of an equity's return by the covariance of a stock index's return.
Cash flow is the lifeblood of a company, and the cash flow statement shows how much money was generated and spent during a given period, which makes it invaluable for investors looking to invest in a company.
The best way to find cheap stocks is by using future earnings, asset valuation, discounted cash flow, fair value, and the margin of safety. Do not look at stock price alone to assess if a stock is undervalued; stock price is only useful in combination with other criteria.
The Price to Earnings Ratio is a commonly misunderstood calculation for determining a company's relative value. The PE Ratio is only useful for comparing companies in the same industry with similar business models. It should not be used to compare radically different businesses.
According to the Shiller PE Ratio, the US stock market is currently 19.2% overvalued compared to its 200-month moving average. Currently, the PE ratio of the S&P 500 is 31, and the 10-year average is 26.
The three main types of financial statements are the balance sheet, income statement, and cash flow statement. Each one provides a different perspective on a company's finances.
Capital stock, also called authorized shares or authorized capital, is the maximum number of shares a company can issue to shareholders. A corporation's charter declares the number and type of stock it can issue, so no more than this amount can be issued.
Investors use the income statement to understand a company's key metrics, revenue, expenses, profit, and operating costs. It is one of the most important documents investors use to understand a company's financial performance.
To read a balance sheet effectively, start by focusing on three main sections: assets, liabilities, and equity. Assets represent what the company owns, liabilities show what the company owes, and equity reflects its net worth.
There are two ways to analyze stocks. Fundamental analysis, which evaluates criteria such as PE ratio, earnings, and cash flow. Technical analysis, which involves studying charts, stock prices, volume, and indicators.
To calculate the intrinsic value of a stock, estimate a company's future cash flow, discount it by the compounded inflation rate, and divide the result by the number of shares outstanding. The result is a stock's fair value.
Over-leverage is using excessive debt to finance investments or business operations, leading to excessive risk. Financial risk increases as the level of debt exceeds the ability to generate sufficient returns to cover the interest payments and principal repayment obligations.
Leading indicators are predictive signals that forecast future economic activity and market trends, allowing investors to anticipate changes before they occur.
EPS or earnings per share is a measure of profitability. It tells investors how much profit a company makes for each share of its stock. The higher the EPS, the more profitable the company is.
Hawks and doves are distinct camps in economics regarding fiscal policy. Hawks lean toward tight monetary policy (high interest rates, low government spending), while doves prefer loose monetary policy (low interest rates, high government spending).
Reverse stock splits are typically undertaken by companies seeking to boost their stock price by reducing the number of outstanding shares. Often seen as a sign of weakness, it attracts short-sellers attempting to profit from statistically proven future price declines.
Stock float is the number of shares available to trade in the public market. This includes all shares held by institutional and retail investors and restricted stock owned by insiders. Float can impact a stock's trading volume, price movements, and volatility.
To calculate dividend yield, divide the stock's annual dividend per share by the stock's current market price. The dividend yield increases as share prices drop, so to triple your yields, buy stock price panic crashes.
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