Lesson 4 demonstrates that a share of a business is one unit of the overall business. For example, if an ice cream stand business was worth $100,000 dollars and the owner divided the company into 10,000 shares, each share would be worth $10. In this scenario, the 10,000 shares that the company would be divided into would be called the shares outstanding.
Just like a business, that becomes more or less valuable, 1 share of a business will do the same. Although we have only learned basic valuation techniques during the three previous lessons, we know that the earnings per share (EPS) -or just earnings- is one of the most important term to understand. The earnings per share (EPS) essentially tells us the profit that 1 share has made in a 1 year period.
Also, it is learned that the book value (or equity per share) is a very important term because it provides the value of 1 share if the business stopped operations. A comparison of the book value and trading price (or market price) determines our margin of safety on each investment
During the video, it is important to look at 1 share as if it were a mini-business, because it ís easy to proportionally look at the value of the entire business that way. It is also learned that owning 1 share is no different than owning the entire business.
Republished for Information, Education and Knowledge!
Source: Preston Pysh
This is an interactive blog page on the information on Nepal Stock Exchange (NEPSE) online update. This site will also contains videos and slides on lessons for learning for stock investment as well as interviews too.
Showing posts with label Market of Safety. Show all posts
Showing posts with label Market of Safety. Show all posts
Saturday, October 22, 2016
Lesson 4: What is a Share?
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