1. Stock Basics
Ms. Zucchero

2. Stock Basics *Stock prices change every day
*Share prices change because of supply and demand
*If more people want to buy a stock (demand) price moves up
*If more people want to sell a stock than buy it there will be greater supply than demand, price will fall
This part is easy, understanding what makes people like or dislike a stock is hard

3. Stock Basics
The Principal Theory - the price movement of a stock indicates what investors feel a company is worth
Company’s value - market capitalization – The number of outstanding stocks multiplied by it’s share price
$100 per share and has 1 million shares outstanding has a lesser value than a company that trades at $50 per share and has 5 million shares outstanding
$100 x 1 million = $100 million
$50 x 5 million = $250 million

4. Stock Basics
The most important factor that affects the value of a company is is its earnings
*Earnings are the profit a company makes
*Public companies are required to report
*Better than expected, price of stock will go up
*Worse than expected, price of stock will go down

5. Why do stock prices change - nobody really knows for sure
Stock Basics
Why do stock prices change - nobody really knows for sure
The important things to grasp:
Supply and demand in the market determines stock price
Price times the # of outstanding shares is the value of the company
Comparing just the share price of two companies is meaningless
Earnings of company are what affect investor’s valuation of a company
There is no one theory that can explain everything

6. Company ABC Vs. Company XYZ
Dividend Yield
Dividend Yield – shows how much a company pays out in dividends each year relative to its share price – it is the return on investment for a stock
Company ABC Vs. Company XYZ
If two companies both pay annual dividends of $1 per share, but ABC company's stock is trading at $20 while XYZ company's stock is trading at $40, then ABC has a dividend yield of 5% while XYZ is only yielding 2.5%

7. Market Value per Share / Earnings per Share (EPS)
Price/Earnings Ratio
P/E Ratio – a valuation of a company’s current share price compared to its per-share earnings
Market Value per Share / Earnings per Share (EPS)
If a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be ($43/$1.95)
A high ratio means that investors are anticipating higher growth
The average market P/E ratio is times earnings
Companies that are losing money do not have a P/E ratio

8. Stock Quote Table
Yahoo.finance