I am beginning a series on key stock market information to help you become a more effective retail trader.  We will begin by investigating Financial Statements.  We will look at the Balance Sheet, the Income Statement and the Cash Flow Statement as well as other key metrics and financial ratios.   We will also look at valuation measures that help give insight into the perceived value of a company.

It may make sense to first talk about the measures that are used to typically try and determine the value of a company.  Market Cap is a term used to describe the size of a company.  Market Capitalization is defined as the OUTSTANDING SHARES x THE PRICE PER SHARE.  OUTSTANDING SHARES are defined as shares held by not just the public, but also insiders.  The FLOAT is the total shares available for public trading. 

So, if the number of shares OUTSTANDING is 1 million and the price per share is $50, then the MARKET CAP for the stock is 50 million.  Stocks are usually categorized into Large Cap, Mid Cap and Small Cap.  Large Cap is over $10 Billion, Mid Cap is from $2 to $10 Billion and Small Caps are between $300 Million and $2 Billion.

Another metric that is used by many investors to  reflect a more accurate value of a company is its ENTERPRISE VALUE.  EV more closely depicts the value of a company because it takes into account not only its cash and equity but also the debt of the company.

The final measure that we will explore today is the P/E Ratio.  This is a valuation measure that is based upon comparing a stock’s price divided by its earnings per share.  PE is many times expressed in relation to its last four quarters or sometimes as its (TTM) trailing twelve months as well as forward projections into the upcoming twelve months.

This is a good start and we will continue our discussion next week.  Best, Robin

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