Overview
Main Menu Name: Stock
Calculates the payment necessary to pay off a mortgage over a period of time at a given rate.
In this article:
Background
Common stock represents an ownership (equity) interest in a corporation. Each common stock shareholder is entitled to a proportionate share of the control, profits, and assets of the corporation. Stockholders exercise control through voting rights and receive a share of corporate profits through dividends. In the event the corporation is sold or liquidated, owners of common stock share the net proceeds.
Common stocks have enjoyed a long-run average annual rate of return above those for fixed-income investments. Although values have fluctuated widely over short periods of time, common stock returns have been favorable for the long-term investor. Gain or loss on common stock is defined as the difference between the amount received on the sale of the stock and the investor's basis, that is, the total cost including commissions paid in buying and selling the shares.
Dividends represent the common stockholders' share in the earnings and profits of the corporation. Cash dividends are generally paid by most corporations on a quarterly basis. "Dividend yield" is calculated by dividing the annual dividend rate by the market price of the stock.
The price-earnings (P/E) ratio is the stock's current market price divided by the company's most recent twelve-months' earnings.
Why should I use this calculator?
- To evaluate the attractiveness of a common stock.
- To determine the adequacy of income provided by a stock investment for retirement or other purposes.
- To decide between two stocks with respect to the level of income.
- To decide among alternative stock investments on the basis of their price and earnings relationship; other things being equal, investors tend to favor stocks with lower price-earnings ratios.
- To judge the appropriate timing of a stock purchase. Many investors prefer to purchase a stock when its P/E ratio is at or near its historic low point.
- To distinguish between a conservative and a speculative stock. Conservative stocks tend to have price-earnings ratios of six to ten times earnings, while more speculative issues have ratios in the range of twenty to thirty times earnings.
Getting Started
Common stock represents an ownership (equity) interest in a corporation. Each common stock shareholder is entitled to a proportionate share of the control, profits, and assets of the corporation. Stockholders exercise control through voting rights and receive a share of corporate profits through dividends. In the event the corporation is sold or liquidated, owners of common stock share the net proceeds.
Common stocks have enjoyed a long-run average annual rate of return almost twice that of fixed-income investments returns on stocks have averaged nine to ten percent over the last fifty years while fixed-income securities such as corporate bonds and government securities have averaged only four percent.
Gain or loss on common stock is defined as the difference between the amount received on the sale of the stock and the investor's basis, that is, the total cost including commissions paid in buying and selling the shares.
Dividends represent the common stockholders' share in the earnings and profits of the corporation. Cash dividends are generally paid by most corporations on a quarterly basis. "Dividend yield" is calculated by dividing the annual dividend rate by the market price of the stock.
The price-earnings (P/E) ratio is the stock's current market price divided by the company's most recent twelve-months’ earnings.
Entering Data
To analyze common stock investments, enter the following values in the entry fields:
- Original Purchase Price: Enter the original price paid for the stock.
- Current Market Price: Enter the current fair market value for the stock (typically the market price). The Wall Street Journal is an excellent source for the current market price.
- Annual Dividend Per Share: Enter the annual dividend per share. This information can be found in financial newspapers.
- Earnings Per Share: Enter the earnings per share. For this information consult Standard & Poor's Stock Guide, Moody's Corporate Records, the Value Line Investment Survey, or a company's own annual report. Most of these sources are available in public libraries.
Results
The previous values provide the following results:
- The dollar amount of gain or loss per share.
- The percentage gain or loss.
- The dividend yield on the stock.
- The price-earnings ratio.
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