How does the result affect the share price?
The ten most important key figures for stocks and the stock market
The two N-words have meanwhile become a horror for every investor: zero and negative interest rates are a headache for all those who are looking for profitable investment opportunities for their money. With interest rate investments, this is anything but easy at the moment. Many therefore switch to the stock market. There are higher returns. However, especially in times of crisis, it is much more difficult to find those stocks on the stock market that promise future success - and thus rising share prices. In addition to the basic knowledge of how securities trading works, the key figures with which companies and their shares are valued on the stock exchange can be of help. Biallo.de presents the most important ones.
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1. Market capitalization
Investors can use the market capitalization to see how much a company is currently worth on the stock exchange. The key figure is therefore also called the market value. Since market capitalization is dependent on the company's share price, it changes daily.
This is how the market capitalization is calculated
The market capitalization can be calculated by multiplying the number of shares in circulation by the current share price. If a stock corporation has issued 100 million shares and these are currently worth 30 euros each, then the market capitalization is three billion euros. When calculating the market value, those shares that the company itself holds or that are not in circulation are not taken into account.
This is what the market capitalization says
Market capitalization describes how high the capital market rates a company. If the market value of a stock corporation rises, this also means an increasing asset value for the owners. A high stock market value usually promotes awareness of a stock corporation - for example, if the company's market capitalization is included in a stock index. This increasingly attracts investors. This in turn increases the liquidity of a share - and the more liquid the shares are, the easier it is to buy and sell them. At the same time, a high market value is also an obstacle to taking over the company.
Sales are a measure of the size of a company. It shows how much money the company is making in a given period of time. The turnover - or revenue - is often included in other key figures, such as the price-turnover ratio (see below).
This is how sales are calculated
The turnover results from the quantity of the sold products multiplied by their price. If a company sells one million products for ten euros each, the turnover is ten million euros. As a rule, the net turnover is considered - i.e. the proceeds without VAT. If you divide the profit of a company by the turnover, you get the return on sales or return on sales.
That's what sales say
Sales are an essential metric for any company. Ultimately, it is a measure of how popular the company's products or services are on the market. Sales are particularly important for young companies that are not yet profitable. The more it grows, the more successfully the company positions itself in the market. If the company finally makes a profit, the return on sales shows how efficiently the company operates. It indicates what proportion of a company's turnover remains as profit. If a company achieves a profit of eight euros for every 100 euros in sales, the return on sales is eight percent.
Profit is a key figure, especially when it comes to a company's share price. As a rule, good profit prospects ensure rising share prices. Shareholders look at several profit sizes.
This is how profit is calculated
If one subtracts the production costs from the turnover of a company, the result is earnings before interest, taxes, depreciation and amortization (EBITDA). If the depreciation is removed, i.e. the loss in value of property, plant and equipment and intangible goods, earnings before interest and taxes (EBIT) are obtained. If you finally reduce this again by the loan interest and the taxes due, the annual surplus remains.
That's what the profit says
Profits signal that companies are operating profitably. The profitability of the core business can be seen from the first profit variable, EBITDA. The EBITDA shows whether a profit is generated from the pure sale of the products. If one subtracts the wear and tear of the production goods, it becomes clear how profitable a company's production process is. The EBIT is therefore also called the “operating result”.
Finally, the annual surplus indicates how much money is left over from the income for the company owners - for example, the shareholders. In addition to profit, profit growth is important, the increase in profit within a certain period of time. It shows whether a company is shrinking, stagnating or growing. Future earnings growth, profit expectations, determine how a company's share price develops.
4. Price / earnings ratio
The P / E ratio is the best known and perhaps the most important indicator for assessing the value of a share. Investors should always take a look at the P / E ratio of the stock before buying company shares. With its help, you can assess whether the share is particularly cheap - or rather overvalued.
This is how the P / E ratio is calculated
The P / E ratio is obtained by dividing the price of a share by the earnings per share. So if the share price is 50 euros and earnings per share are four euros, the P / E ratio is 12.5. The company's expected profit is usually used for the calculation.
This is what the KGV says
The price / earnings ratio provides information about the multiple of its earnings with which a company is valued on the stock exchange. A value of 12.5 means that it will take 12.5 years for the company to generate the value of its shares in profit. Or to put it another way: How long the investor would have to wait before getting his stake back - assuming that the entire profit is paid out in full each time.
Basically, the lower the P / E ratio, the cheaper the share is valued. No rule, however, without exception: A favorable price / earnings ratio does not always mean that a share is also a bargain. A low share price - and thus also a low P / E ratio - can indicate that something is going wrong in the company. Then you'd better keep your hands off the stock. Conversely, companies can certainly use tricks when it comes to profit. A look into the past can then be helpful: Was the company consistently profitable? Or is the high profit just an outlier?
5. PEG ratio
To assess whether a stock is over- or undervalued, you can also compare the price-earnings ratio with the expected earnings growth. The so-called PEG ratio is then obtained. PEG stands for “Price-Earning to Growth”, in German the “price-earnings-growth ratio”.
This is how the PEG ratio is calculated
The PEG ratio results from the P / E ratio divided by the expected profit growth of a company. For a share with a PER of ten and expected growth of five percent, this results in a PEG ratio of two.
This is what the PEG ratio says
The PEG ratio shows whether a share is fairly valued or not. A fair valuation results when the P / E ratio and expected earnings growth are equal. The PEG ratio is then one. A stock, on the other hand, is overvalued if the P / E ratio exceeds expected earnings. The PEG ratio is then greater than one. If the price-earnings-growth ratio is less than one, the stock is undervalued. Compared to the P / E ratio, the key figure also takes future growth into account. The stronger it is, the easier it is to give a company a high course.
6. Price-to-cash flow ratio
Because profits are comparatively easy to improve, stock market experts often look at the price / cash flow ratio (P / E) in addition to the P / E ratio. "Cash flow" means "cash flow". The term describes the payment flows in a company. This means the money that flows into a company's cash register over a certain period of time - minus the funds that go out. A positive cash flow shows how liquid a company is. A company can use the cash flow to pay off loans or make investments.
This is how the KCV is calculated
Similar to the P / E ratio, the price-to-cash flow ratio is obtained by dividing the stock price by the cash flow of the stock. The KCV can also be used when calculating a P / E ratio does not make sense, for example because the company has made a loss. The cash flow can be found in the cash flow statement. This is part of the consolidated financial statements.
This is what the KCV says
The price / cash flow ratio indicates the factor with which a company's earning power and ability to invest on the stock exchange are assessed. As with the P / E ratio, the following also applies here: the lower the KCV, the cheaper the share. A company with low cash flow and thus high KCV can run into problems in the long term because it lacks liquid funds. Conversely, companies with a high cash flow can invest a lot and thus grow in the long term. However, especially in young companies with good growth opportunities, the cash flow is often low. A high KCV is therefore not always synonymous with an overvaluation of the share. Here, too, a look at the company's history can help: If the KCV develops positively in the long term, that is a good sign.
7. Price-to-sales ratio
In young companies, profit and cash flow are often low or even negative. In such cases, it is often more useful to consider the price-to-sales ratio (KUV). This also applies to companies that are heavily dependent on business cycles. You should therefore only compare companies in the same industry with the KUV.
This is how the KUV is calculated
The KUV can be determined in two ways. On the one hand, like the two previous key figures: By dividing the share price by the sales per share. In addition, the total market capitalization - i.e. the number of shares multiplied by the share price - can be related to the company's sales. At a price of 50 euros and one million shares, the market capitalization of a company is 50 million euros. That is the company's market value. If the company has a turnover of 25 million, this results in a KUV of 2.0.
This is what the KUV says
The same applies to the KUV: the lower it is, the cheaper the share is. For example, if one company has a KUV of two and another has a KUV of five, then the first one is rated better. The value of the KUV makes it clear how high the company's income is compared to its market value. High sales indicate that the company's products or services are in high demand. However, a good KUV says nothing about the profitability or liquidity of the company. If a market is overheated, the informative value of the KUV is low. Investors should therefore always keep an eye on the other key figures.
A supplementary key figure for young growth companies is the so-called "Rule-of-40". It is used, among other things, by venture capitalists to assess start-ups. The growth rate and the free cash flow rate are added together. The cash flow rate relates the cash flow to sales. If the sum of the growth and cash flow rates is over 40, a company is considered attractive.
An example: A company whose sales are growing at 100 percent can handle a negative cash flow rate of up to 60 percent. This means that more money flows out of the company than in. However, high sales justify this imbalance. If, on the other hand, sales only grow by 40 percent, the cash flow should be balanced. The company should therefore gradually strengthen its financial strength as sales decline.
8. Return on Equity
Equity investors should always be aware of how a company manages its equity. After all, shareholders are equity providers. The key figure for this is the return on equity.
This is how the return on equity is calculated
In order to determine the return on equity, one divides the company's profit by the equity available in the company and multiplies the whole by 100. The ratio shows how interest has been paid on the equity invested. If a company with equity of 30 million euros generates a profit of 1.2 million euros, the return on equity is four percent [(1.2 / 30) x 100%].
This is what the return on equity says
The return on equity enables business owners to see whether their investment is profitable. In principle, it is good if a company makes a lot of profit with little capital, so the return on equity is high. This shows that the company is doing well with the owners' money. Together with other key figures, the return on equity can also provide information on the further development of the company. A low return can indicate overvalued assets on the balance sheet. This can result in value adjustments in the future. Or the low return indicates unprofitable capital tied up. This can be, for example, high stocks or fixed assets that are no longer used productively in the company.
In addition to the return on equity, investors should also consider a company's equity ratio. It is an important indicator for the financial stability of a company. An equity ratio of 100 percent would mean there is no debt. However, that hardly ever happens - and it is also undesirable. Because especially when interest rates are low, it is often more profitable to take out loans for new investments. With new equity, on the other hand, one would also attract new shareholders with whom one would have to share future profits. The equity ratio varies depending on the industry. In growth sectors, companies usually have lower equity ratios.
In addition to equity, companies also finance themselves with outside capital. The equity comes from the owners of the company - in the case of stock corporations, from the shareholders. A company receives outside capital through financial loans or through services that the company receives from suppliers or customers on credit. If you put debt capital and equity in relation to each other, you get the degree of indebtedness.
This is how the leverage is calculated
The degree of indebtedness in percent results from dividing debt by equity and multiplying by 100. A company whose balance sheet has loans and liabilities of 750 million euros and equity of 250 million euros accordingly has a debt ratio of 300 percent [(750 / 250x100].
That says the level of indebtedness
The higher the level of indebtedness, the riskier the company's financing. A high proportion of credit goes hand in hand with a high cost of interest and repayment payments. High levels of indebtedness thus increase the risk of insolvency. In addition, the greater the proportion of borrowed capital, the less the company's independence, because it is more dependent on lenders when it comes to financing investments. At the same time, a high level of debt has a negative effect on the company's creditworthiness. However, if the company is profitable, a high level of debt capital can also have advantages. Because external capital generates profits that increase the profitability of equity. This is called the leverage effect.
10. Dividend Yield
The dividend is the part of the profit that a stock corporation pays out to its shareholders once a year. Even if a stock barely rises or does not rise at all, shareholders still have the dividend as profit from their investment. The dividend yield shows how high this profit is compared to the price of the share.
This is how the dividend yield is calculated
The dividend yield is obtained by dividing the dividend by the price of the stock and multiplying the result by 100. Example: A company pays a dividend of three euros per share. If the share price is 50 euros, the dividend yield is six percent [(3/50) x 100)].
This is what the dividend yield says
The dividend yield indicates the extent to which the investment in a company share has paid off. Many investors therefore purposefully buy shares in companies that generate high dividends. At least as important as the amount of the dividends, however, is their development over time. Companies with consistently high dividends are likely to continue to pay comparatively high amounts to their shareholders in the future. Stable dividends in times of crisis are also a quality feature for a company. However: the amount of the dividends also depends on the investments - for example in research and development.Companies that do a lot of research or invest in new technologies often also pay little profit. However, the investments can generate profits in the future.
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