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.