Back

Stock Formulas


Stock formulas are used for many things when it comes to analyzing the stock market. They can be used to determine the fair price of a company's stock or to calculate the total value of that company. They can also be used to try and predict which direction the stock price is headed. In this article we will discuss a few examples of stock formulas and what each ones purpose is.

Net Equity Formula

The Net Equity Formula is used to calculate the net value of an operating corporation. It does this by totaling up all the company's assets and liabilities. When putting this formula into practice you want to make sure that the assets are a positive number and that the company's liabilities get marked with a negative sign. This is because liabilities are normally things such as debt or other obligations that cost a company money and are therefore valued below zero. Then the assets and liabilities are added together and create a new number called the Net Equity.

Stock Price Formula

The stock price formula is used to estimate the fair value of a share of a company. This is done by calculating the Market Capitalization a company has and then dividing by the number of outstanding shares. This works because when a company goes public they make the decision to represent their company's value in the form of shares.

Market Capitalization

The Market Capitalization formula (also called Market Cap) is calculated by taking the number of outstanding shares of a stock and multiplying by the stock price. This is the opposite of what the stock price formula does. This is a good formula to use if you want to check the math of the stock price formula or if you dont know the market capitalization but need to calculate it quickly.

Debt to Equity Ratio

This is exactly what is sounds like. It's calculated by taking the companies total debt and dividing by the companies total equity. This gives the investor an idea about how much debt a company is in vs how much it is actually accomplishing with that debt. Generally the lower this number is the healthier the company is. If this number is above 1.00 that means that the company has more debt that it is worth and its probably not a good investment.

Price to Earnings Ratio

This formula is a very popular one among stock traders and everyday investors it is commonly called the PE ratio or abbreviated as EPS. This is calculated automatically by most trading platforms and generally displayed underneath the stock symbol. When a company has a low priced stock but earns a lot of money in each quarter this number will be low. If a company has a rather expensive stock but doesn't earn very much within the financial quarter, then this number will be high. The lower the number the better the investment it is because it means you need a smaller amount of capital to make a decent amount of money.

Dividend Yield

The Dividend Yield is calculated by taking the stocks total dividend payouts for the last 12 months and then dividing that number by the stock price. This shows the investor the expected RIO (return on investment) per year if they decide to invest in this stock and collect dividends. For example if IBMs dividend yield was calculated at 5.2% then the investor should expect to receive $5.20 each year for every $100 he invests into IBM. This is called Dividend Investing.

Revenue per Share

This formula is pretty straight forward. Take the company's total revenue and divide by the number of outstanding shares. This gives the investor an idea of how well a company can sell products or services to satisfy the financial desires of shareholders.