Page 141 - CalcBus_Flipbook

CH 18] Calculating Business 18-5

Stock quotes continually scroll across the screen of the financial channels or the wires,
showing current or slightly delayed information throughout the trading day. Generally ticker
quotes are for stocks on one exchange. Should two exchanges be reported they both will
scroll across the screen in separate lines.
There are more than one stock exchange. When the stock symbols are three letters, they
are most likely trades on either the New York Stock Exchange (NYSE) or the American Stock
Exchange (AMEX). A four-letter symbol indicates the stock is likely traded on the Nasdaq.
These exchanges also use color coding when reporting stocks. A green arrow indicates the
stock is trading higher than the previous day’s close, and a red arrow indicates that the
stock is trading lower than the previous day’s close. Presume the information in Figure 18.1
is red in color which means that it is trading lower than the previous day. When the
quotation is either blue or white, it means that the stock is unchanged from the previous
closing price. Stocks are quoted in decimal values to the penny.

Printed Stock Quote Reports
Newspapers with business sections will print stock quotation reports with stocks of
interest for the geographical region they serve. Table 18.1 is a Quotations Report of current
businesses traded on various exchanges of common trading. The prices are listed as whole
and decimal fractions that represent dollars. The stocks are listed alphabetically under
columnar headings that are almost self-explanatory. For example, Table 18.1 reveals that on
the date covered by the listing, Apple Inc., AAPL (Traded on the Nasdaq) sold a volume,
listed in millions, approximately 17,342,000. The price for these shares opened at $193.97,
reached a high trading price of $196.97, and the last trade (closing trade) was for $194.19. P / E (Price over
This represented a —$0.62 difference from the previous days’ close which was ($194.19 + Earnings) : A ratio of
$0.62 =) $194.81. The next column lists the 1 year change which is $3.49 higher than this a stock’s market price
time last year. P/E, also known as the P/E ratio, represents the share market price over the to its earnings.
company’s earnings. In Table 18.1 Apple has a P/E of 16.33 which means that the price
paid for this stock is 16.33 times higher than the earnings of Apple Inc. This ratio is used
for valuing companies and to find out whether they are overvalued or undervalued.

Buying Stock
It is important to distinguish between the buyers in the stock market as there are two
types of buyers with differing objectives: investors and speculators. The investor’s objective
is to use their money for productive projects such as growth or expansion with an
expectation of a reasonable return for the use of their invested funds, higher than they
would receive from a deposit with the bank. Purchasing stock in a manufacturing firm is
with the expectation that factory output will increase and more products will be purchased
by the consumer returning higher profits to the business and its owners (stockholders). Liquidity: Describes
Purchasing stock in a research and development business is with the expectation that the the degree to which an
research will develop new or improved products that the market place will use, returning asset or security can
higher profits to the firm and its owners (stockholders). be quickly bought or
When Amazon.com first began it was a book seller with warehousing and devised a sold in the market at a
selling method and delivering products (books) to customers via mail and parcel delivery; an price reflecting its
old business model envisioned and implemented by Montgomery Ward (1872) and Sears & intrinsic value. In other
words: the ease of
Roebuck (1893) with their catalog mail order business model. Today the business model is converting it to cash.
digital, with internet access, orders and payments being digitally transferred. Amazon.com
has expanded its product lines to include hundreds of thousands of products besides the
hundreds of thousands of book titles. The result being a rational investment decision made
with the eye to the future implementing current technology, and the investors intending to
put their money to work towards increased value. The return on investment for the investor
is through increased business profits shared with the owners through dividends and
increased value of their shares in the secondary marketplace, when they sell their stocks.
The speculator is investing their money anticipating the movement of individual stock
prices to be either up or down, and making a profit from that movement; the rule being ‘buy
low and sell high’. When the speculator sells a stock with the anticipation that the stock
price will fall, they will buy the stock back at a lower price and the difference in prices is
their profit. When the speculator buys a stock with the anticipation that the stock price will
rise, they will sell the stock at a higher price and the difference in price is their profit. This is 18
a ‘bet’ and is gambling. Their bet is on the direction the price of a particular stock will move;
up or down. Speculators make their buy or sell decisions on a gut feeling, or are trading on

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