Lots of stocks look like good investments at first glance but it can be confusing to know whether a stock is a good value for investment or if it's worth its current price. If you don't know how to calculate stock valuation, it can be a real obstacle to investment success, but there are few simple rules to make it easy.
Things You'll Need
- Pen and paper
Determine a stock's value by entering its name in a financial search portal such as StockCharts.com. It will pull up the current information on the stock's price action as well as a current chart. Take notice of the number of shares issued on that company and write that total down.
Scroll down to the "Financials" section and click the "Balance Sheet." On the Balance Sheet, scroll down to the bottom of the sheet and take note of the current Net Tangible Assets and write that down. The Net Tangible Assets is the hard asset value, which is arrived at by adding all assets and then subtracting all liabilities. Write that figure down.
Take the total Net Asset value and divide that by the number of shares issued on this company. That final number is the true stock price value for the shares on any publicly traded company.
Observe and take note of the ROE or Return On Equity of the stock. Filter out any stock candidate that doesn't have at least a 30% ROE. This is the return on the company's assets and is a good indicator to the competency of the current management as to their ability to get the best returns on the company's equity. Discard any stock as a potential investment that has less than 30% ROE.
Tips & Warnings
- Further filter out companies that are not the number one or two competitor in their respective industry. Make sure that they have products and services that are in demand now and in the foreseeable future to insure that they will continue to be strong performers, as well as good values to invest in today.
- Always diversify your stock holdings so in the event one stock under performs, it will not drag down your overall return. If the stock performs poorly don't hesitate to sell it to take advantage of another opportunity.
- Photo Credit NA/AbleStock.com/Getty Images
- How to Calculate Intrinsic Value
How to Value Common Stock
A company’s common stock is only worth what investors are willing to pay, so the market price on any given day is...
How to Calculate the Total Value of a Company
Balance sheet analysis provides several ways to examine a company's total value. Evaluate companies by examining their balance sheets for potential cash...
How to Use Excel for Stock Trading Research
Microsoft Excel can be used to analyze and research stocks by using formulas to determine the future stock price. There are many...
How to Compute Stock Value in a Closely Held C-Corporation
If you own stock in a private company, such as a closely held C corporation, it is important to calculate the value...
- How to Calculate the Value of Shares