Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds


Page 225

Float — This item gives a better view of the actual number of shares that are in the hands of the public. The float is the number of outstanding shares less the shares held by the company’s executives and very large shareholders (i.e., those with more than 5% of the total number of shares).

Beta Coefficient — This is a ratio used to measure a stock’s volatility as compared to the S&P 500. If a stock’s beta equals to one, this means that it has the same volatility as the S&P 500. In simple terms it means that stock’s up and down price movement is about average. A lower than one ratio points to a stock with less price movement than that of the market’s average. This stock could be regarded as a less risky stock than those with betas higher than one. For example, Norfolk Southern with a Beta value of about 0.75 is a less volatile (and therefore a less risky) stock than Yahoo with a Beta value of about 3.2, which means it is over three times more volatile than the S&P 500 index.

Profitability

Annual Revenues — This is the company’s revenues for the past year. Since most of a company’s revenues are derived from sales, this value could be compared to the revenues from past years to see whether and by how much the company is growing.

Net Income — This is the company’s earnings for the past year. In simplest terms, it is the amount of cash left for the company after all expenses are paid. This is the most important figure in measuring a company’s health. It is profits that shareholders buy the company’s stock for in the first place. Profits are used to pay dividends to shareholders, for those that pay dividends. It is important that the company’s profits are compared to those in the past years to see if a growing trend can be established. If a company delivers good earnings on flat revenues, it could just mean that the company was effective in


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