1. Stock Market Basics
Financial Literacy

2. What We Will Cover Stock Splits Beta Values Reading a Stock Quote
Price/Earnings Ratio
The Stock Market in General
Purchasing a Stock
Supply vs. Demand

3. Stock Split
Sometimes the price of a stock gets high, and the company wants to lower the price to be more attractive to investors, so they split their shares

4. Stock Split - Example
Example: You own 100 shares of Company A, worth $10 each for a total portfolio value of $1000 (100 shares X $10/share)
Company splits 2 for 1
You now have 200 shares (100 X 2)
But they are worth half as much ($10/2)
Your portfolio value stays the same: $1000 (200 shares X $5/share)

5. Stock Split- Example Company A: Your Beginning Portfolio Value:
100 shares X $10/share = $1,000 total value
Stock splits 2 for 1:
Now you have 100 X 2 shares = 200 shares
But they are worth half as much= $5.00/share
Ending Portfolio Value:
200 shares X $5.00/share = $1,000 total value
The total portfolio value didn’t change

6. Stock Split – Another Example
Company B:
Your Beginning Portfolio Value:
200 shares X $33/share = $6,600 total value
Stock splits 3 for 1:
Now you have 200 X 3 shares = 600 shares
But they are worth 1/3 as much = $11.00/share
Ending Portfolio Value:
600 shares X $11.00/share = $6,600 total value
The total portfolio value didn’t change

7. Practice Stock Split Problems:
Company XXX (Pre-split):
Shares: X
Price: =
Total Value
1,000
$5.00
$5,000
Stock splits 2 for 1
After Split:
(Number of Shares X 2=)
______
(Price / 2=)
$_______
$________
Total Portfolio Value stays ___________________________

8. Another Stock Split Problem:
Company YYY (Pre-split):
Shares: X
Price: =
Total Value
300
$30.00
$________
Stock splits 3 for 1
After Split:
(Number of Shares X 3=)
______
(Price / 3=)
$_______
Total Portfolio Value stays ___________________________

9. And Another…. Company ZZZ (Pre-split): Shares: X Price: = Total Value
200
$21.00
$________
Stock splits 3 for 1
After Split:
______
$_______
Total Portfolio Value stays ___________________________

10. Beta Value
The beta value measures a stock’s volatility compared to overall changes in the stock market
If a stock has a beta of +1.5 and the market goes up 10%, the value of the stock is expected to rise 15% (multiply the increase in the stock market X the beta value)
Average beta is between
Beta value can be found under “Key Statistics” or on the main stock page
A higher beta indicates more risk because the stock price change will be more drastic

11. Stock Market Increase/Decrease Anticipated Stock Price Change
Practice Beta Values:
Stock Market Increase/Decrease X
Stock’s Beta Value =
Anticipated Stock Price Change
10% .9 9% 8%
1.2
_____%
12%
3.0 5% .5
-9%
1.0
-3%
2.1

12. Reading Stock Quotes

13. Company Name, Ticker Symbol and Stock Exchange
Stock Quote
Company Name, Ticker Symbol and Stock Exchange

14. Stock Quote
Current Price (Last Trade Price), up (green) or down (red) for the day in dollars and percent; last trade time

15. Last price at the end of trading yesterday
Stock Quote
Last price at the end of trading yesterday

16. Price the stock opened at this morning at beginning of trading time
Stock Quote
Price the stock opened at this morning at beginning of trading time

17. Stock Quote
The price buyers are willing to pay (bid) and the price sellers are asking (ask)

18. The price analysts think the stock will be at a year from now
Stock Quote
The price analysts think the stock will be at a year from now

19. Stock Quote
The volatility index: how much the stock is predicted to move as compared to the market as a whole

20. Stock Quote
The next day the company will report earnings (or report profit for the previous three months)

21. The highest and lowest prices the stock has traded TODAY
Stock Quote
The highest and lowest prices the stock has traded TODAY

22. Stock Quote
The highest and lowest prices the stock has traded during the PAST YEAR

23. The number of shares traded so far TODAY
Stock Quote
The number of shares traded so far TODAY

24. The number of shares traded on an average day
Stock Quote
The number of shares traded on an average day

25. The total value of all the stock outstanding
Stock Quote
The total value of all the stock outstanding

26. The price/earnings ratio (see definition below)
Stock Quote
The price/earnings ratio (see definition below)

27. The net income the company earned for each share of stock
Stock Quote
The net income the company earned for each share of stock

28. Stock Quote
The dividend the company pays per year in dollars and as a percentage of stock value

29. A chart of how the stock price has changed today
Stock Quote
A chart of how the stock price has changed today

30. Charts of price changes for various time periods in the past
Stock Quote
Charts of price changes for various time periods in the past

31. Price/Earnings Ratio
P/E ratio is the most commonly used measurement of how expensive a stock is
Formula: price of stock divided by earnings per share
For ZION, it is closing price (23.86) divided by earnings per share (.97) = (approximately))

32. P/E Ratio – What Does It Mean?
It is the price investors are willing to pay for each dollar of profit in the company
The higher the P/E ratio, the more investors are willing to pay for the profits of a company– it becomes a more expensive stock
Companies with high P/E ratios are more risky because there are higher investor expectations
If the company doesn’t meet expectations, the stock price will drop, sometimes drastically

33. P/E Ratios: N/A: a company with no earnings
0-10: a stock is either undervalued (cheap) or the company’s earnings are declining
10-17: For many companies, this is considered fair (accurate) value
17-25: The stock may be overvalued (expensive), or it may be a company expected to have future high growth
Over 25: Investors have high expectations for future growth; may be overvalued and risky

34. How Well the Stock Market is Doing Overall

35. 3 Basic Indicators (Indexes)
Dow Jones Industrial Average (“DOW”)
Lists the 30 leading industrial blue chip stocks
Standard and Poor’s 500 Composite Index
Covers market activity for 500 stocks
More accurate than DOW because it evaluates a greater variety of stock
National Association of Security Dealers Automated Quotations (“NASDAQ”)
Monitors fast moving technology companies
Speculative stocks, show dramatic ups and downs

36. Ups and Downs
The term bull market means the market is doing well because investors are optimistic about the economy and are purchasing stocks
The term bear market means the market is doing poorly and investors are not purchasing stocks or selling stocks already owned

37. Purchasing Stock

38. Brokers
A Broker is a person who is licensed to buy and sell stocks, provide investment advice, and collect a commission on each purchase or sale
Purchases stocks on an organized exchange (stock market)
The vast majority of all stocks are bought and sold on an organized exchange

39. Organized Exchanges
A stock exchange is a place where stocks are bought and sold.
There are minimum requirements for a stock to be on an exchange, to ensure only reputable companies are listed
Each exchange has a limited number of seats available which brokerage firms purchase to give them the legal right to buy and sell stocks on the exchange
NYSE, Nasdaq, and American Stock Exchange

40. How Do Stock Prices Change? Supply vs. Demand
The stock exchange is organized based upon the laws of supply and demand

41. Stock Supply vs. Demand With a limited number of shares of stock,
If the demand is high:
Share prices will rise because investors are willing to pay more to get the stock.
If the demand is low:
Share prices will drop because investors are willing to take a lower price to get rid of their shares.