Company stock

For this paper, I chose IBM’s (International Business Machine) stock price. From the Yahoo! Finance website, stock price and other financial information of IBM can be found. On the first page that loads, one can find the latest stock price and how it changed compared to the last trading day. Other relevant information such as volume, market capacity, P/E ratio, Earnings per Chare (EPS) and dividends can also be found on the same page.

Clicking on “Basic Charts” link lets you see how the company’s stock performed over the last whole year through a chart. In the same page, there is also an option to compare the chosen company’s stock performance to another company. On the “Financials” category, one can have access to the income statement, balance sheet and cash flow tables of the company for the last three years. This gives us an idea how well or bad the company is doing financially. “Historical Prices” link gives the table of stock price information for each day. The table consists of the trading date, open, high, low, close, volume, and adjacent close.

The “Industry” link shows the industry where the company belongs to. In this case, IBM is the chosen company and it belongs to the industry of diversified computer systems. “Insider” link presents information about the insiders or shareholders of the company, the number of shares and their value. The company profile can be viewed once “Profile” link is clicked from the main page.

This shows the company’s main address, business summary, top executives and corporate governance. “SEC Filings” link shows the different documents filed by the company such as annual reports, results of operations, cost of change in assets and many more. Basically, all the things you need to know about the company’s financial standing in the market as compared to other companies within the same industry can be found in the Yahoo! Finance website.

Other than the different information found on the different hot links, there is also a set of data found in the main page where the stock price is. These accounting data such as the P/E ratio, EPS, Dividends, and market capacity help compute the value of the company’s stocks at every trading day. The price of the company’s stocks somehow depends on these accounting information.

The different models in computing for the theoretical value of a stock such as the Constant Growth Model or the P/E Ratio Model need these financial information to fulfill the computation. Though, stock prices also depend highly on its market value and customer perception of the company, these models serve as basis for a valid study of the stock value computation.

With the current information about IBM (trading day April 13), the company’s P/E ratio is 16.82 and Earnings per Share is 4.88. The industry’s P/E ratio is 23.3. Thus, IBM is said to be lagging behind its competitors in the industry in terms of P/E ratio but not so far behind though. P/E or the price per earnings ratio is computed by getting the market value of each share (stock) then dividing it with the earnings per share.

P/E essentially shows how much an investor is willing to pay for each dollar of earnings. In the case of IBM, investors are willing to pay $16.82 per $1 of current earnings of the company. With the data above on IBM’s P/E and EPS, we can compute the theoretical stock price which is:

The current stock price of IBM is 81.98 which is approximately the same as the stock price obtained using the P/E model.

References

International Business Machines Corp. (2006, April 13). Yahoo! Finance. Retrieved April 15, 2006, from http://finance.yahoo.com/q?s=IBM

McCracken, M. E. (2005). Stock valuation. Retrieved April 15, 2006, from http://teachmefinance.com/stockvaluation.html

Price-Earnings Ratio – P/E Ratio. (n.d.). Investopedia. Retrieved April 15, 2006, from http://www.investopedia.com/terms/p/price-earningsratio.asp