4 Common stock indicator

 In this era of rapid development, the increasing number of demand have prompted all the goods and services are getting more and more expensive. In order to cover the increasing life expenses, we have to work hard and find others way to increase our income. There are many ways to increase your income such as: take up a part time job, run a business and invest. Investing means allocate your resources(money) into certain asset with the expectation of generating an additional income or profit. For example: you can choose to invest in stocks, real estate, a business or commodity. There are many preparations you have to do before you invest your hard-earned money into the assets just to avoid losses. The preparations may be fundamentals analysis, technical analysis, strategy, risk management and so on. So today I wanna share about four stocks indicator that usually be used by investor in choosing their stocks.

4 common stocks indicator :

• Earning per share ( EPS)
  

The formula for earning per share is net income minus preferred dividends and divide by number of common share and the answer will be value form. EPS will show the profitability of a company which means how much money a company make for each share of its stock. So that's mean if the company has a high EPS then it is profitable instead a low EPS then it is less profitable. So, to make it clear, below is an example:

So, to calculate the EPS we have to use the format above $1000000 - $250000 = $750000 (net income minus preferred dividends) and use $750000 divide by 11000000 (total shares outstanding) equals to $0.068 and we have to round it off so the value gonna be $0.07 and this mean company has made $0.07 net profit for each of the shareholder.

• Return on equity (ROE)

Return on equity is computed by using the net income divide by shareholder's equity and the answer will be in percentage form. ROE is used to measure the efficiency of a company in using their assets to generate income or profits. So a high percentage of  ROE show that the company is efficient in using their assets to create income instead a low ROE show less efficient. Here is an example for ROE: 

So the picture above show the net income and the shareholder's equity of two company. For company A, use $5000 divide $20000 equals to 0.25 and times 100 it will be 25%. For company B, use $5000 divide $12000 equals to 0.4167 and times 100 it will be 41.67%. After we have calculated ROE for both company and we know that company B is more efficient in using assets to create profits compared to company A because company B has the higher ROE (41.67%) compared to company A (25%).

• Price to earing ratio (P/E ratio) 

The formula for price to earning ratio is current price per share/market price per share divide by earning per share and the answer will be ratio base. P/E ratio will show the relationship between a company's share price with it's earning per share and P/E ratio also give us a better understanding of the value of a company. Moreover, P/E ratio also indicate the expectation of the market and it is the price you pay for one unit of the current earning. If a company have a high P/E ratio and this may means company's stock is over-valued or the investors are expecting high growth rates from the company in the future. Example:

Here are some information about company IBM and Cognizant. For company IBM, use $139.46 divide $9.52 and we will get 14.65. For company Cognizant, use $72.23 divide $3.6 and it will be 20.07. From here we know that IBM has the lower P/E ratio than the Cognizant which means in order to get $1 profit from IBM, investors are willing to pay $14.65. For Cognizant, investors are willing to pay $20.07 to get $1 profit. Yes, exactly IBM share price ($139.46) is higher than Cognizant share price ($72.25) but IBM has a higher EPS ($9.52) whereas Cognizant has a lower EPS ($3.60). A share price won't give us meaningful information instead we have to use share price divide earning per share to get the P/E ratio. Thus, Cognizant's stock is more expensive to buy compared to IBM's stock even though IBM share price is higher than Cognizant share price.

• Dividend per share (DPS)

We as an investor and we would like to know how much dividend will we get from the total dividend, so we can use DPS to calculated it. DPS is computed by using the total dividends issued by company divide with total number of share and it will be value base. For instance, here are two company: company A and company B. The total dividend issued by company A is $20000 and $30000 for company B. The total number of shares for company A is 5500 and 10000 for company B. Therefore we will know the DPS for company A is $3.64/share and DPS for company B is $3/share. So we know that company A has the higher DPS than company B but doesn't mean company A is better than B, it just mean company A is more suitable cashflow investor. Apart from the cashflow, we also can get profit via stock growth which means the value of stock keep increasing. Hence, DPS is usually used by investor who want to increase their cashflow. 

So, these are the four common stock indicator that I wanna share to you. After you guys have known these indicators and I think you all will wonder where should I find these all information? Actually, we can find these all information from website, newspaper and certain application. Furthermore, we don't have to calculate these all indicators cause it have been calculated by the system and what we need to do is just refer to the indicators only. Apart from these four indicators there are still many useful information we can get from some application. So it is better to download certain application like KLSE screener, investing.com to explore more. All the best in investing !!!