Investing Basics: Key Metrics

Stock Price

Represents the current trading value for a single share of a company’s equity.
Key “headline” figure most investors see first; serves as the input for many other valuation metrics.
Drives psychological market sentiment (e.g., a very low absolute price can attract speculative trades even if it says nothing about actual value).

Describes the total equity value the market assigns to the company at a given moment.
Formula: \text{Market Capitalization}=\text{Share Price}\times\text{Total Shares Outstanding}
Why it matters
• Allows comparison across companies of different share-price levels.
• Sorts firms into size categories (large-cap, mid-cap, small-cap) that often correlate with risk and growth potential.
Hypothetical numerical illustration
• If a company’s share price is 50 and it has 10{\,}000{\,}000 shares outstanding, then \text{Market Cap}=50\times10{\,}000{\,}000=500{\,}000{\,}000 (500\,$million).

Measures how much investors are willing to pay for each dollar of the company’s earnings.
Formula: \text{P/E Ratio}=\frac{\text{Share Price}}{\text{Annual Earnings Per Share}}
Interpretation
• High P/E ⇒ market expects higher future growth or sees the firm as lower risk.
• Low P/E ⇒ may indicate undervaluation, slower growth prospects, or higher perceived risk.
Simple numerical example
• If a stock trades at 30 and the firm’s annual earnings per share equal 2, then \text{P/E}=\frac{30}{2}=15$$.
Two common variations (trailing vs. forward) are often discussed in practice, though not detailed in the original transcript.