AIM How do we analyze stocks based on their financial data? DO NOW How can we use financial reports (Annual and Quarterly reports) to help us decide when to buy or sell?

Financial results are relative to what analysts EXPECT! Companies try to “Beat The Street”  “Microsoft Sales Beat Street Hopes” Microsoft: +1.43% yesterday  “Ford's lower profit beats estimates…” Ford: +1.86% yesterday  “Wall St. Extends Rally On Solid Corporate Results” The Dow: +1.26% yesterday  “Profit Doubles at G.M. As It Strives to Move Past Recalls” G.M.: +1.87% at one point yesterday, but closed -1.25% HOW DO WE USE ANALYSTS ESTIMATES OF EARNINGS (PROFITS) TO EVALUATE STOCKS?

What is EPS ? How do we calculate EPS? What does EPS measure? If two companies have the same EPS, does that mean they are both good investments? EPS

P/E Ratio stands for “Price To Earnings Ratio” This is also known as the “earnings multiple” It shows how much investors are willing to pay per dollar of earnings. E.g. if we say a stock is trading at 2x, it’s stock price is 2x its earnings) Is a higher multiple better than a lower one? Can the multiple be too high or too low? P/E RATIO