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How to Tell If You’ve Made the Right Choice of Investment

January 12, 2024February 2, 2023 by Aditya Jaiswal

How to Tell If You’ve Made the Right Choice of Investment So you have already played your hand on the stocks front, but are having second-thoughts about whether you’ve made the right decision. If that is the case, you have stumbled upon an article that should open your eyes to some extent, if not to a large degree. It will outline certain important factors to come to a fair understanding of your investment choices, and we at Dailytopstocks certainly hope you do with the aid of our investment advice. One of the main things to consider in this regard is the percentage gain on an investment. In order to find out the percentage gain, we must know how much the investment originally cost when it was bought. This purchase price is then subtracted from the price at which the investment was sold, which provides us with the value of the percentage gain. What is a Percentage Gain? A percentage gain is the increase in value of an investment, expressed as a percentage of the original investment. The concept of percentage gain is important to understand when comparing different investments. For example, if one investment has a higher percentage gain than another, it doesn’t necessarily mean that it’s a better investment – you also need to take into account the size of the gains. To calculate your percentage gain, simply divide the amount of your gain by the original investment and multiply by 100. Percentage gain = [(selling price – purchase price)/purchase price] * 100 Example of Calculating Percentage Gain or Loss Let us now take a simple example of how percentage gains are calculated, which should demonstrate to you how they must be calculated for a variety of stocks and commodities. Let us imagine a situation where an investor purchased 20 shares of Apple Inc. (AAPL) at $120 per share. This brings the value of our imaginary investor’s initial input up to $2,400. This is the original purchase price for this investment. Now, let us suppose that the price of each of Apple’s shares rises to $135 over a period of time after which our happy-go-lucky investor decides to sell all of his 20 shares of Apple. In this case, the selling price of his investment would come up to $2,700. Therefore, the numerator value of the formula can be calculated as follows: Selling price – purchase price = $2700 – $2400 = $300 As we have discussed before, the denominator value in the fraction is the purchase price, i.e. $2400. So, in order to finally bring up the percentage gain of the investment into Apple stocks of our fictitious investor, we will have to multiply the fraction by 100, that is, Percentage gain = ($300/$2400)*100 = 12.5% Other Factors to be Considered Investing does not come without costs, and this should be reflected in the calculation of percentage gain or loss. The examples above did not consider broker fees and commissions or taxes. To incorporate transaction costs, reduce the gain (selling price – purchase price) by the costs of investing. Fees Any fee that an investor pays out to potential stock brokers, or any other third parties, must be taken into account when calculating the percentage gain (or loss) of an investment as well. This can be factored into the formula by subtracting any additional broker fees from the numerator value of the fraction of our formula (before multiplying by 100). For instance, considering our Apple investor’s example, supposing he paid $2 per share as fee to the stock broker, he must then have paid $40 to the broker, which means the amount of $40 has to be reduced from the original $300 he made as profit. So, the new percentage gain, factoring in the broker fee paid by our imaginary investor would be as follows: Percentage gain = {[(Selling price – purchase price) – broker fee]/purchase price} * 100 = {[($2700 – $2400) – $40]/$2400} * 100 = 10.83% Here, you can see the slight effect that additional fees such as those charged by brokers can have on your overall investments and in this case, a percentage change of 1.67% was seen in our investor’s case. Dividends In a similar way that fees such as those charged by brokers can negatively affect the percentage gain of an investment, other factors such as dividends can positively bring about a change in the percentage gain. Dividends are payments that are paid out to shareholders for being party to the company’s profits. When calculating the percentage gain of investments into stocks where dividends were received by the shareholder, just like broker fee, the dividend must be added to the numerator value of the formula. But as it is an additional return in the investor’s favour, it is added instead of subtracted. Incorporating such transaction costs, broker fees, and, dividend income can help investors get a clearer picture about the percentage gain or loss for an investment. Of course, not all investments are as straightforward as stocks. If you’re investing in something like real estate or a business venture, determining your percentage gain can be a bit more complicated. In these cases, you’ll need to factor in things like depreciation and amortization to get an accurate picture of your investment’s performance. Ultimately, though, calculating your percentage gain is a helpful way to track your progress and make sure you’re on track to reach your financial goals. Different Types of Investment When it comes to investing, there is no one-size-fits-all approach. Different types of investments can offer different benefits, so it’s important to choose an investment that matches your goals and risk tolerance. Here are some of the most common types of investments: Tips for Calculating the Percentage Gain If you’re thinking about investing in a new venture, one of the first things you’ll need to do is calculate the percentage gain. But how do you know if you’ve made the right choice? Here are some tips to help you make the decision: Final … Read more

Fundamental Components of Stock Valuation

May 16, 2023January 19, 2023 by Yash Jain

Fundamental Components of Stock Valuation Eager to take your first step into investment in your favourite stocks but can’t make sense of their valuations? Do you feel hopelessly out of touch with the world of finance but can’t help feeling anxious about losing out on the potential of stock investment? Well, it’s your lucky day as this article is specifically for those who are itching to take the plunge but wouldn’t mind a few explanations coming their way, and in a language they can understand. It will serve to give you that boost you need to go on and be able to understand all the investment advice on the internet and elsewhere, and ultimately, make better financial decisions. This is not to say that valuation of stocks is in any way shape or form, a simple deal. It involves sifting through a lot of information to isolate the helpful data from the immaterial clamour. Moreover, a finance expert ought to know about the most widely recognized stock valuation systems and the settings in which they are utilized, so as to determine what stocks are worth. However, this is where we acknowledge the shortcomings for most people reading this post are. Knowledge of basic concepts like how to read financial statements of a company, such as income statements to understand profit margins, cash flow statements, and balance sheets to gauge the position of a company at any point in time are helpful in this regard, but may not be every person’s cup of tea. However, we’ll cut through all the theory to bring you 4 aspects that are undeniably the most vital in evaluating a stock’s worth – with the aid of the least amount of finance jargon possible. Before we dive into what those four factors are, we must be aware of a couple of terminologies which will help us not have to revisit them each time we come to a new concept. These are: So without any further introductions, let us bring to you what we are talking about. The first important factor to consider here is the ratio of the company’s stock price and the book value per stock. This can be calculated by dividing the market value of the stock, let’s call it P, which is readily available on most stock trading websites and platforms, by the value obtained by dividing the book value by the total number of outstanding shares. The book value can be found by going through a company’s balance sheet, which can also be dug up relatively easily on the internet. It is usually present in the company website within their financial information that has been made public. The amount of outstanding shares may also be found here. Dividing the former with the latter gives us the value, say B, which can be the denominator in the ratio we are talking about. Hence, the Price-to-Book ratio = P/B, where P = the market price of each share, and B = book value/number of outstanding shares How this ratio is helpful: A high Price-to-Book ratio means that a company’s stock is likely overvalued and in the same way, that which is low could mean the stock is undervalued. Should you be able to calculate this ratio for a number of companies in a given sector or industry, comparing these values as opposed to listening to the perceived value of these stocks thrown around in general stock-trading conversations can give a much better insight into how companies in a given industry are performing with regard to one another, and which ones to invest in. It is important to note that these numbers should always be compared with those of companies of the same industry for a more accurate measure. Companies with lower values or undervalued stocks are generally the way to go as they may signify a better potential for future returns, once their true values are realised. The second important metric we will take a look at is the Price-to-Earnings ratio. As the name suggests, the numerator of this ratio is the same as the value of P as discussed above, i.e. the market value of each stock, but the difference lies in the earnings aspect. Instead of considering the book value when going through the balance sheet of a company, this time we will consider the profit and loss statement, or the income statement of the company to find the profit margin. Dividing this team with the number of shares is the value we will use to divide the market value of each share with. Let us assign the letter E for the denominator of the ratio we want to looking at. Therefore, E = profit made/number of outstanding shares Thus, the Profit-to-Earnings ratio = P/E How this ratio is helpful: This ratio is quite important, in fact, even more so than the P/B ratio, as a desired number here dictates whether the company is actually making money, which is a pretty good indicator of whether the stock prices will stay up, if they aren’t already. There are also places where the ‘E’ is replaced with projected earnings instead of recorded earnings from the past, which could possibly be a better indicator of how the company’s shares are going to be valued per unit of profit on one share, but those numbers are not as objective as recorded earnings from the past. A high P/E value means that the company is expected to earn more than it is by investors, but a low value could be vital to look at as it could mean the company is doing well in terms of earnings but is undervalued, which is something to watch out for when comparing stocks. As with the previous factor (P/B), comparisons of ratios with those of only similar companies in the same industries need to be made to reach a meaningful conclusion. If you have managed to calculate the above metrics, the PEG ratio should be simple enough to understand … Read more