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Stock Market Valuation

Analyzing the valuation and profit growth of two companies - Tech vs Coffee. Learn how to evaluate individual companies and determine which is worth more based on historical profits, growth rates, and P.E. ratios. Understand the impact of maximizing profits and growing profits over time on stock performance. Find out about P.E. ratios and market expectations for profit growth, with insights into IPOs and raising money to expand companies.

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Stock Market Valuation

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  1. Stock Market Valuation Valuing Individual Companies

  2. Which company is worth more? Company A Company B Business: Coffee Paper Cups History: 15 year old company Profits: Profitable every year +$1.5 million per year (last 5 yrs) Business:Technology History: 3 year old company Profits: Only 1 year of profits Yr 1: -$100,000 loss Yr. 2: -$300,000 loss Yr 3: +$1.0 million profit

  3. 2 Goals of a Company 1) Maximize Profits(each year) 2) Grow Profits(over time) Companies that grow PROFITS the fastest have the best stockperformance

  4. Growth Rates • Investors care about how FAST companies can GROW profits • P.E. ratios reflect GROWTH rate expectations • The HIGHER the P.E. => the FASTER the market expects Profits to Grow • SP500 Average = 20 P.E. • Below 10 P.E. => considered low (less risky, less potential) • Above 35 P.E. => considered high (more risky, more potential)

  5. SP500 Average PE 1900-2015 is 16 2015 Stock market PE = 20 20

  6. Analysis of 2 Companies N/A (losing money) $43 Billion Loss = $1 billion 17 p.e. ratio $36 Billion Profit = $3 billion Current P.E. Ratio Current Market Cap: Profits per year:

  7. IPO’s raise money to expand companies

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