Determining+Stock+Value

Determining Value:

analysts base their future value of a company on their earnings projection. If a company's results surprise (are better than expected), the price jumps up. If a company's results disappoint (are worse than expected), then the price will fall.
 * 1) Most important factor in determining value is earnings. Public companies are required to report their earnings four times a year (once each quarter).

2. Don't equate a company's value with the stock price. The value of a company is its [|market capitalization] , which is the stock price multiplied by the number of  [|shares outstanding]. For example, a company that trades at $100 per share and has 1 million shares outstanding has a lesser value than a company that trades at $50 that has 5 million shares outstanding ($100 x 1 million = $100 million while $50 x 5 million = $250 million).

3. The price of a stock doesn't only reflect a company's current value, it also reflects the growth that investors expect in the future.

4. Stock prices change every day as a result of market forces. By this we mean that share prices change because of [|supply]  and  [|demand]. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.

The important things to grasp about this subject are the following:

1. At the most fundamental level, supply and demand in the market determines stock price. 2. Price times the number of shares outstanding (market capitalization) is the value of a company. Comparing just the share price of two companies is meaningless. 3**.** Theoretically, earnings are what affect investors' valuation of a company, but there are other indicators that investors use to predict stock price. Remember, it is investors' sentiments, attitudes and expectations that ultimately affect stock prices. 4. There are many theories that try to explain the way stock prices move the way they do. Unfortunately, there is no one theory that can explain everything.

Source: [|http://www.investopedia.com/university/stocks/stocks4.asp#axzz1XbJVpafI]