1. UNIT 6: Analyzing Common
Stocks
Mr. Elsesser
Wall Street I

2. How do we Analyze Common Stock?
 REVIEW:
Fundamental Analysis
Technical Analysis

3.  Uses a corporation’s financial data to
evaluate its stock and help predict the
future market of the stock.
 Data Examples:
 Income Statements
 Balance Sheets

4. How is the Fundamental Analyses carried out?
 There are 4 ways to compute a
Fundamental Analysis:
 Earnings per Share (EPS)
 Price to Earnings Ratio (P/E Ratio)
 Dividend Yield
 Revenue per Employee
 Each only makes the most meaningful
sense when compared to other
corporations in its industr y.

5.  This is the amount of net income a
corporation makes per share of
outstanding stock.
EPS = Net Income
# of Shares Outstanding
 A Low EPS indicates that the
corporation is not making much money.
 A High EPS indicates that the
corporation is making large profits.

6.  This is the market closing price of a share
divided by the EPS.
P/E Ratio = Market Closing Price
Earning per Share
 This tells the investor how much they would
have to pay to “buy” one dollar of earnings.
 Ex. P/E Ratio = 10, that means the investor is
willing to pay 10 times the EPS for the stock
 P/E is usually under 20.
 Rule of Thumb: The higher a company’s P/E
multiple, the riskier the investment
(overpriced).

7.  This is the annual dividend per share,
times 100, divided by the market price.
Dividend Yield = Annual dividend per share X100
Market closing price
 This tells the investor how much of their
stock purchase they will receive in dividends

8.  This is the amount of money a
corporation makes per employee.
Revenue Total Revenue
per Employee = # of Employees
 This tells the investor which corporations
are running most ef ficiently.
 A higher result shows greater ef ficiency.

9.  Concentrates on char ting stock prices,
trends in the market, and patterns in
the indices and with the averages to
predict future per formance.
 Ex.DJIA, S&P, Consumer Price Index (CPI),
Bollinger Bands.