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

Page 224

the other side of the spectrum is a failing company, continuously bleeding money with a grim future. Such a company would have poor fundamentals. Investors have always been attracted to companies that either have good fundamentals or exhibit signs of good future fundamentals. But what are the criteria used to determine if a company has good fundamentals? Just like a human body, which exhibits certain signs in health and sickness, the vital statistics of a company can be used as a yardstick to determine its fundamentals. The following is a list of some popular fundamental measurements.

Share-Related Items

Market Capitalization - We covered this before but again this is a dollar value equal to the number of shares times share price. Using this value, one can determine the market value of the company and to what market cap category it belongs (e.g., large cap or mid cap). Market capitalization is a good measurement of determining how over or undervalued a company is. Some people mistakenly use a company's stock price for this purpose. Market cap is where they should be looking at. Ask yourself whether the company deserve a market cap of x dollars. Not whether the company deserve a stock price of x dollars.

Shares Outstanding - The number of shares issued by the company less the number of shares retained by the company itself. Basically these are shares available to the public for trading. This value could be used to determine the relative supply of a company's shares. The lower this value, the fewer shares are available to trade. Companies with too many outstanding shares run the risk of diluting their share value, and those with too few shares may reach a psychological price barrier. Hence many companies split their stocks once the shares reach a certain high price (e.g., a 2 for 1 split when stock reaches $200 per share).


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