The importance of daily changes in the averages will be clear if you view them in percentage terms. When the market is not changing rapidly, the normal daily change is less than ? of 1%. A change of ?% is still moderate; 1% is large but not extraordinary; 2% is dramatic. From the market averages, it's a short step to the thousands of detailed listings of stock prices and related data that you'll find in the daily newspaper financial tables. These tables include complete reports on the previous day's trading on the NYSE and other leading exchanges. They can also give you a surprising amount ofextra information.
Some newspapers provide more extensive tables, some less. Since the Wall Street Journal is available world wide, we'll use it as a source of convenient examples. You'll find a prominent page headed "New York Stock Exchange Composite Transactions". This table covers the day's trading for all stocks listed on the NYSE. "Composite" means that it also includes trades in those same stocks on certain other exchanges (Pacific, Midwest, etc.) where the stocks are "dually listed". Here are some sample entries:
52 Weeks Yld P-E Sales Net
High Low Stock Div % Ratio 100s High Low Close Chg.
52 7/8 37 5/8 Cons Ed 2.68 5.4 12 909 49 3/8 48 7/8 49 1/4 +1/4
91 1/8 66 1/2 Gen El 2.52 2.8 17 11924 91 3/8 89 5/8 90 -1
41 3/8 26 1/4 Mobil 2.20 5.4 10 15713 41 40 1/2 40 7/8 +5/8
Some of the abbreviated company names in the listings can be a considerable puzzle, but you will get used to them.
While some of the columns contain longer-term information about the stocks and the companies, we'll look first at the columns that actually report on the day's trading. Near the center of the table you will see a column headed "Sales 100s". Stock trading generally takes place in units of 100 shares and is tabulated that way; the figures mean, for example, that 90,900 shares of Consolidated Edison, 1,192,400 shares of General Electric, and 1,571,300 shares of Mobil traded on January 8. (Mobil actually was the 12th "most active" stock on the NYSE that day, meaning that it ranked 12th in number of shares traded.)
The next three columns show the highest price for the day, the lowest, and the last or "closing" price. The "Net Chg." (net change) column to the far right shows how the closing price differed from the previous day's close-in this case, January 7.
Prices are traditionally calibrated in eighths of a dollar. In case you aren't familiar with the equivalents, they are:
Con Edison traded on January 8 at a high of $49.375 per share and a low of $48 875, it closed at $49.25, which was a gain of $0.25 from the day before. General Electric closed down $1.00 per share at $90 00, but it earned a "u" notation by trading during the day at $91 375, which was a new high price for the stock during the most recent 52 weeks (a new low price would have been denoted by a "d").
The two columns to the far left show the high and low prices recorded in the latest 52 weeks, not including the latest day. (Note that the high for General Electric is shown as 91 1/8, not 91 3/8.) You will note that while neither Con Edison nor Mobil reached a new high on January 8, each was near the top of its "price range" for the latest 52 weeks. (Individual stock price charts, which are published by several financial services, would show the price history of each stock in detail.)
The other three columns in the table give you information of use in making judgments about stocks as investments. Just to the right of the name, the "Div." (dividend) column shows the current annual dividend rate on the stock - or, if there's no clear regular rate, then the actual dividend total for the latest 12 months. The dividend rates shown here are $2.68 annually for Con Edison, $2.52 for GE, and $2.20 for Mobil. (Most companies that pay regular dividends pay them quarterly: it's actually $0.67 quarterly for Con Edison, etc.) The "Yid." (Yield) column relates tie annual dividend to the latest stock price. In the case of Con Edison, for example, $2.68 (annual dividend)/$49.25 (stock price) ==5.4%, which represents the current yield on the stock.
5.1 The Price-Earnings Ratio
Finally, we have the "P-E ratio", or price-earnings ratio, which represents a key figure in judging the value of a stock. The price-earnings ratio-also referred to as the "price-earnings multiple", or sometimes simply as the "multiple"-is the ratio of the price of a stock to the earnings per share behind the stock.
This concept is important. In simplest terms (and without taking possible complicating factors into account), "earnings per share" of a company are calculated by taking the company's net profits for the year, and dividing by the number of shares outstanding. The result is, in a very real sense, what each share earned in the business for the year - not to be confused with the dividends that the company may or may not have paid out. The board of directors of the company may decide to plow the earnings back into the business, or to pay them out to shareholders as dividends, or (more likely) a combination of both; but in any case, it is the earnings that are usually considered as the key measure of the company's success and the value of the stock.
The price-earnings ratio tells you a great deal about how investors view a stock. Investors will bid a stock price up to a higher multiple if a company's earnings are expected to grow rapidly in the future. The multiple may look too high in relation to current earnings, but not in relation to expected future earnings. On the other hand, if a company's future looks uninteresting, and earnings are not expected to grow substantially, the market price will decline to a point where the multiple is low.
Multiples also change with the broad cycles of the stock market, as investors become willing to pay more or less for certain values and potentials. Between 1966 and 1972, a period of enthusiasm and speculation, the average multiple was usually 15 or higher. In the late 1970s, when investors were generally cautious and skeptical, the average multiple was below 10. However, note that these figures refer to average multiples-whatever the average multiple is at any given time, the multiples on individual stocks will range above and below it.
Now we can return to the table. The P-E ratio for each stock is based on the latest price of the stock and on earnings for the latest reported 12 months. The multiples, as you can see, were 12 for Con Edison, 17 for GE, and 10 for Mobil. In