Metrics to Analyze a Stock Stock picking is an Art not a Science – best application of theory Intangible and Tangible information available and difficult to quantify Emotions often take over Fundamental Analysis – goal is to find an intrinsic value (what is it worth!) Quantitative Analysi s Is the revenue growing Is the company generating a profit Is the company carrying too much debt – can they repay P/E Ratio Dividend Payout or Dividend Yield Qualitative Analysis Brand Recognition Patents Proprietary Information

Price Earnings Ratio (P/E) Oldest and most frequently used metric to value a stock Ratio of the Company’s share PRICE to its PER SHARE EARNINGS Or Market Value Per Share / EPS Tells us how much investors are willing to pay for a dollar of earnings (can be called the “multiple” of a stock). Example a P/E of $20 means investor willing to pay $20 per $1 of earnings the company generates Use Trailing EPS (Past 4 quarters) or Projected EPS (forward estimates of EPS) Varies widely between industries and depends on economic conditions If P/E is greater than industry then market is expecting a growth in earnings A valuation metric – is the stock expensive?

Dividend Yield How much a company pays out in dividends each year relative to its share price If the stock does not go up, the dividend yield = the return on the stock Or Annual Dividends Per Share / Market Value Per Share Dividend Payout Ratio Proportion of a company’s earnings allocated to pay a dividend Very lucrative if the payout increases over time Dividends add to the total return of the stock and supplement cash flow