What the heck do all those numbers in the financial reports really mean? Well, that is a good question. Here Goes:
One thing to remember is that a lot of these numbers are guesstimated. The are projections into the future based upon behavior or performance in the past. Usually the past is taken to be the Trailing Twelve Months. I try to warn about this whenever I define something, but it is getting to be repetivive, and I might forget to put it in. Just remember many of these things are projectsions into the future based on past performance.
The Earnings Per Share of a stock are the projected earnings (dollars) per share of a stock for the next year. This is based on the returns of the TTM (Trailing Twelve Months), so it is a guess on future based on the past. For example, a company with earnings of $100000 and with 50000 stock shares would have a EPS of $100000/5000 or $2 per share. EPS are taken into account AFTER the dividend is paid to the shareholders -- Don't confuse it with the Dividend Yield. EPS isn't necessarily money that goes into an investor's pocket. They are funds used to improve the company. Of two identical companies, with differening EPS, it is likely that the high EPS company is growing more, investing more in its future, paying a lower dividend.
The Market Capitalization of a stock is the
Number of Stock Shares * Share Price.It is an indication of how large a company is -- a firm with a Market Cap of 137 Billion is quite a bit larger than a firm with a Market Cap of 13 Million! To get an idea of how companies are grouped by market capitalization, take a look at the various capitalizations.
These are all ranges which categorize stocks, sometimes arbitrarily into categories based on their Market Capitalization. This can change over time, since with inflation and the continued growth of the markets the total market cap keep on increasing. Or shrinking.
Since they are ever in flux, here are a couple of recent definitions: Really, the values depend on whom you talk to.
In the United States there are 4 financial quarters per year.
The Net Asset Value is a property that is unique to a fund. It corresponds directly to the Market Captitalization of a stock. By multiplying the total # of shares by the share value, you get an idea of the size of the mutual fund.
Different from stocks, though, the "market cap" of a fund doesn't really matter -- the cap of a fund is defined by its holdings, not by its value. The reason that NAV may be important to you is that it lets you determine the size of holdings of a fund. A large fund may be more stable, and/or more mature than a smaller fund. If the NAV of a fund shrinks, it could be due to reductions in share value, OR reductions in people holding the shares. Or both.
The P/E or Price to Earning Ratio is an indicator of How Expensive, or How Much an investor is willing to pay per dollar of the Earnings that a particular investment makes. For example, say there are two totally identical companies making the same product, same sales, same suppliers, etc. Company A's stock has a P/E of 12, and Company's B stock has a P/E of 6. Which do you buy? You should buy Company B's stock -- you pay half as much for the same earnings.
In the real world things aren't so cut and dried. There may be a really good reason that Company A's stock is more expensive -- they have some competitive advantge for example. Or, they are trendy and their stock is in demand, having nothing to do with financial info. This number is generated from past performance, usually the TTM.
The Risk and the Yield of financial instruments are inter-related. Higher Risk investmens will have Higher Yields to compensate. Safe low-risk investments will have lower yields.
Return on Equity
The Trailing Twelve Months is the one of the usual time frames used to judge investments. Since time is always moving forward, it is always recalling how the stock performed in the last trailing year. If this didn't exis,t once the year flipped a stock's return could look really great or bad due to the limited history. By providing a TTM number, you get a more realistic view of that instrument.
Yield is the return on an investment. Basically it is the ratio of Gain/Cost. From this you can see that given an identical investment, two investors may have quite different yields on that investment. The difference depends on the price of the investment when the investor purchased it. If one purchased it for less money, they will have a greater yield -- they get the return for a lower cost. Conversely, the same instrument purchased at a greater cost will have a lower yield; it costs them more to get that identical return.
There are many different kinds of yield -- income yield,
dividend yield, capital yield, etc.
XXX Loook this up, maybe return is the proper name for some of those,
but they are all yields too.
With Stocks, the term Yield has a more precise definition: it means what the expected Dividend Yield of the stock will be. How much income yield an investor will receive in a year. However, remember that Yield depends on purchase cost? Well, whenever you see a prospectus for a stock, the yield listed is the yield at the current cost of the stock. Which could be higher or lower than your personal yield. As usual, it is based on the past, usually the TTM