Simple Stock Analysis- Part 1 - The Most Important Measure - Earnings Per Share
Why do we do business? Although this is a part philosophical question and almost ridiculously simple to answer, this is a key question that leads us to the main point.
So Why do we do business? Well in the beginning we had a system of "Bartering" where you may have exchanged 4 goats for 1 cow, or 1 daughter for a flock of sheep.
However as the feudal system crept into society along came money made from gold by the King himself.
With the concept of money came the concept of profit.
Although business today has obligations to its employees, customers, communities, even the environment, it is essentially there to make money, and if it has shareholders, they get to share it.
So although it sounds callous to talk about money the main and distinctly most important measure of any company is it's ability to make money.
What are the Measures?
Even more so when it comes to Stock analysis.
If analysts on Bloomberg TV, are not talking about the debt to asset ratio, or volume of short term debt, it is the, Current Ratio, or even the P/E Ratio.
I even saw in a very popular "income investor" newsletter, a recommendation for a company called APD, amongst its impressive statistics were a 5-Year Estimated Earnings Growth: 2% WOW, 2% earnings growth, let me have a piece of that pie..
..
..
please please please.
Anyway enough sarcasm.
The key fundamental factors about stock selection are in detail in future articles.
But if you take one thing out of this article, it should be
So Why do we do business? Well in the beginning we had a system of "Bartering" where you may have exchanged 4 goats for 1 cow, or 1 daughter for a flock of sheep.
However as the feudal system crept into society along came money made from gold by the King himself.
With the concept of money came the concept of profit.
Although business today has obligations to its employees, customers, communities, even the environment, it is essentially there to make money, and if it has shareholders, they get to share it.
So although it sounds callous to talk about money the main and distinctly most important measure of any company is it's ability to make money.
What are the Measures?
- Revenue - the amount of money that went into the cash register of the company (before taxes, and expenses)
- Profit Margin - the percentage difference between, Net Profit (after tax) and Net Sales
- Earnings - Earnings are the revenue minus the expenses.
- Earnings per Share (EPS) - EPS is the company's total earnings (after tax) Divided by the total ordinary shares outstanding in the market place.
- EPS = Earnings (after taxation) / Total ordinary shares
Even more so when it comes to Stock analysis.
If analysts on Bloomberg TV, are not talking about the debt to asset ratio, or volume of short term debt, it is the, Current Ratio, or even the P/E Ratio.
I even saw in a very popular "income investor" newsletter, a recommendation for a company called APD, amongst its impressive statistics were a 5-Year Estimated Earnings Growth: 2% WOW, 2% earnings growth, let me have a piece of that pie..
..
..
please please please.
Anyway enough sarcasm.
The key fundamental factors about stock selection are in detail in future articles.
But if you take one thing out of this article, it should be
- Companies that are making a lot of money (revenue or Earnings), are good companies.
- Companies, that are making more money this year that last year, are good companies.
- Companies that are making more money this quarter than the same quarter last year are good companies
- Companies, that are making jumps in earnings that are larger percentages that the previous period, are "GREAT COMPANIES"
