How Can I Get Started Investing in the Stock Market ?

How to make money from stock market ?

Most people are aware of a stock’s price. Investors and analysts talk about a company’s price going up or down on the market in a given day. However, out of context, a stock price gives very little information about the health or value of a company. To truly understand how well a stock is doing, you need to look at a variety of factors. For that, we need some definitions.

 

Outstanding Shares – This refers to the total number of shares of a company held by all its investors. This number is used to calculate other key metrics like Earnings Per Share and Price to Earnings ratio.

Dividends – Once a company reaches a certain level of stability and profitability, it can choose to start paying dividends. During a growth period, profits are usually reinvested in a company so it can grow more (which also benefits investors), but once growth stabilizes, a company can choose to pay dividends to shareholders. Shareholders can then choose to reinvest those dividends to get even more shares of stock.

Earnings Per Share – This is the amount of money that a company earns per share of stock. It’s calculated as a company’s net income minus dividends on preferred stock divided by the average outstanding shares. So, if a company makes $50m and there are 18 million shares outstanding, then one share is worth $2.78 worth of the company’s income.

Market Capitalization – Market cap is the current share price multiplied by all outstanding shares. This gives you a general idea of the size of a company. While getting the absolute value of a company is a bit more complicated than just looking at the market cap, for most basic research, comparing two company’s market cap can help you get a better sense of scale than a share price will.

Price to Earnings Ratio – Put simply, price to earnings (or “P/E”) is a company’s current share price divided by its EPS. This amount will show you about what investors are willing to pay per dollar of earnings. It can also be used as a metric to determine how much a company is over or undervalued.

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