Value investors typically pass on companies that trade at more than twice their growth rate. When a company's stock price flashes gains and losses on your television screen, it tells one side of the story -- the public ticker face. A new investor can be swayed by what looks on the surface like a "cheap" or "expensive" price.

Exercise 1

But an old-hand first unpacks the numbers -- growth rate, sales, earnings -- to discover if a company is undervalued a bargain or overvalued a pricey risk.

Pros ask a set of critical questions and use a basket of equations whenever they analyze a company, and so should you.

Check the company's most recent quarterly report Q and look up their earnings per share EPS. You'll find two figures: The number of shares of stock the company issued and the earnings.

To calculate the EPS by hand, divide the earnings by the number of shares. You'll quickly realize that you can't compare Company A to Company B based on price alone, even if they're trading at similar prices.

The number of shares matters when you calculate earnings. This number can stump new investors. But it's part of an investing vocabulary and helps you come to terms with the difference between price and value. Factor in the sales and you have another measure of value. Divide the share price by the total sales and you have the price-to-sales ratio.

Keep this in mind when a company catches your investment eye. It's risky and difficult for companies to fudge sales revenue numbers.

Cost Of Debt And Preferred Stock

Include the company's growth rate and calculate the PEG rate. According to MSN Money, stocks with PEGs higher than 1. Associate degrees that make money Lee has more than 12 years of experience as a business writer, specializing in personal finance and education.

Her articles have appeared online at Wave Newspapers, Turning Point Magazine and Facsnet.

Lee studied political science at the University of California, Berkeley. Skip to main content. Things Needed Calculator Current financial statements. Tip Another way to figure the price-to-sales ratio: Find the market value share price multiplied by outstanding shares and divide it by the total amount of sales for the previous fiscal year.

Valuation Of A Preferred Stock

Warning Watch for company's that project revenues far how to calculate preferred stock issued the future and don't have concrete alibaba stock options yahoo. They're harder to evaluate. References 2 SmartMoney; Valuation Ratios: How Much Should You Pay?

Resources 1 Financial Industry National Authority: About the Author Francesca Lee has more than 12 years of experience as a business writer, specializing in personal finance and education.

Suggest an Article Correction. More Articles [Cash Flow] "How to Calculate Dividends, Retained Earnings and Statement of Cash Flow" [Preferred Stock] How to Calculate Dividends on Preferred Stock [Common Stock] How to Determine If a Company's Common Stock Still Has Value [Market Capitalization] How to Calculate the Market Capitalization of a Company. Also Viewed [Earnings Available] Formula for Calculating the Earnings Available for Common Stockholders [Dividends Paid] How to Calculate Dividends Paid to Stockholders With Retained Earnings [Valuation] How to Calculate the Valuation of a Company [Market Share] How to Calculate Market Share for Start-Up Companies [Total Value] How to Determine the Total Value of a Corporation [Private Company] How to Find the Net Worth of a Private Company [Formula] Simple Formula to Determine the Value of a Business.

Par value - Wikipedia

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