Stock Market Prices
Share Price: The price a single share of a given company’s stock.
Shares Outstanding*: The total number of common shares of a given company’s stock that have been issued and purchased by shareholders.
Market Capitalization: share price × shares outstanding
Company Balance Sheet
Assets**: Anything that is owned or controlled by a company that can produce value or otherwise create economic benefit.
Current Assets: Assets that can be converted to cash within the fiscal year, or used to pay current liabilities.
Long-term Assets: Assets that cannot easily be converted into cash. Also known as Property, Plant and Equipment (PP&E).
Liabilities: A company’s obligation, arising from a past transaction, to transfer assets, to provide services, or to otherwise yield economic benefit.
Current Liabilities: Liabilities that must be settled in cash within the fiscal year or the operating cycle of a given company, whichever is longer.
Long-term Liabilities: Liabilities with a future benefit over one year, such as notes payable that mature longer than one year.
Book Value***: assets – liabilities
Working Capital: current assets – current liabilities
Price to Book Ratio (P/B Ratio): market capitalization ÷ book value, or share price ÷ book value per share
Company Profit and Loss
Revenues: Inflow of cash to a company from its normal business activities, such as the sale of goods and services to customers.
Expenses: Outflow of cash from a company to support normal business activities, such as the acquisition of goods or services (e.g., raw materials) from vendors.
Net Income: The residual income of a company after adding total revenues and gains and subtracting all expenses and losses. Also known as Net Earnings or Net Profit.
Profit Margin: net income ÷ revenues
Earnings per Share: annual net income ÷ shares outstanding
Price to Earnings Ratio: market capitalization ÷ annual net income, or share price ÷ earnings per share
Earnings Yield: 1 ÷ price to earnings ratio, or earnings per share ÷ share price
Dividend: A payment made from a company to a shareholder, generally a share of income/earnings/profit.
Dividend Yield: annual dividends ÷ market capitalization, or annual dividend per share ÷ share price
Dividend Payout Ratio: annual dividends ÷ annual net income, or annual dividend per share ÷ earnings per share, or dividend yield ÷ earnings yield
Capital Gains: Profit resulting from investments in a capital asset (e.g. a company’s stock): the difference between a higher selling price and a lower purchase price. Capital losses are also possible: the difference between a lower selling price and a higher purchase price.
Return: The ratio of money gained by a shareholder relative to the original investment. Also known as Rate of Return (ROR) or Return on Investment (ROI). Money gained usually consists of Dividends (realized during share ownership) and Capital Gains (realized upon selling shares). For multi-year investments typical of a Value Investing policy, the Internal Rate of Return is a useful method for calculating the effective annual interest rate for a given investment. This method does not account for the cost of capital (e.g., margin) or inflation.
Price/Earnings to Growth Ratio (PEG Ratio): A valuation metric for determining the relative trade-off between the share price of a stock, the earnings per share (EPS), and the company’s expected growth. Generally, the price to earnings ratio is higher for a company with a higher growth rate. Thus using just the price to earnings ratio can make high-growth companies appear overvalued. By dividing the price to earnings ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. It is proposed by its supporters that a fairly valued company will have a price/earnings to growth ratio of 1.
Gordon Model: A variant of the discounted cash flow model, a method for valuing a company’s Share Price. The Gordon Method can be simplified as:
return = dividend yield + earnings growth rate; or
return = (dividend ÷ price) + earnings growth rate; or
price = dividend ÷ (return – earnings growth rate)
Graham’s Formula: A method for calculating the Intrinsic Value (i.e., the price at which the stock is correctly valued). If the Share Price is greater than the Intrinsic Value then the stock is over-priced, and vice versa.
* Shares outstanding should generally be calculated as fully diluted by including diluting securities such as options, warrants or convertibles.
** Assets can be either tangible or intangible. Examples of tangible assets include currencies, buildings, real estate, vehicles, inventories, equipment and precious metals. Examples of intangible assets include trade secrets (e.g., customer lists), copyrights, patents, trademarks, and knowledge. Goodwill is neither a tangible nor an intangible asset, but a separate thing again.
*** Book Value occasionally includes goodwill and intangible assets. Tangible Book Value never includes them.