Finance: What are Market Metrics?

What are market metrics? Market metrics are all of the figures used to determine how well a company is performing and whether an investment should be made. These show up on company’s financial documents as simple numerical figures or ratios.

College and CareerPersonal Finance
CoursesFinance Concepts
FinanceFinance Definitions
Financial Responsibility
Personal Finance
Finance and EconomicsTerms and Concepts
LanguageEnglish Language
Life SkillsFinance Definitions
Personal Finance
SubjectsFinance and Economics
Terms and ConceptsAccounting
Banking
Careers
Charts
Company Management
Financial Theory
Insurance
Metrics
Real Estate
Tax
Trading
Trusts and Estates

Transcript

00:25

instead of shopping for discounted radishes, well investors are shopping

00:29

for stocks that are either on sale or fulfill the need of that night's

00:32

financial dinner. the key metrics well price to earnings ratio and there's

00:37

a whole open Shmoop video on this one. but that's the price of the stock divided by [equation shown]

00:42

its earnings. so let's think about coca-cola K.O. it's trading for 50 bucks

00:47

a share and let's also say that they'll only earn 250 this year .only. so it's

00:52

market metric of a price to earnings ratio 20 50 bucks - 50 share price

00:57

divided by earnings is the price to earnings ratio. it's 20 all right another

01:01

metric price to sales- that is how many times revenue is a given stock. for

01:07

example Dow Chemical trades at three times revenues it also trades at about

01:11

16 times earnings. but why would you care about a revenue multiple isn't the goal

01:16

of companies to produce profits not revenue? like who really cares about [100 dollar bill]

01:20

revenues? well yeah you actually do. here's why. profits

01:23

change dramatically from year to year whereas revenues well they're relatively

01:28

steady. that is in a good year revenues from Dow might grow fifteen percent, and [ chart shown]

01:33

earnings might be up eighty. in a bad year revenues might decline 3% but

01:38

earnings might be down a hundred percent or more. so if you're an investor you're

01:42

gonna want some kind of anchor in your analysis that sets kind of a range at

01:46

which Dow Chemicals should trade so that you're not getting violently whipped [an anchor sinks into the water]

01:50

around by earnings numbers changing so dramatically in the course of a

01:54

decade-long market or economic cycle .so those metrics price to earnings and

01:58

price to sales revolve around the individual analysis of a single stock.

02:03

there are other metrics investors look at like volume. no not that kind of [hand turns up volume know]

02:09

volume .volume as. in the number of shares traded on a given

02:12

day in a given market like Nasdaq or the NYC, or you know something like. that

02:17

so this metric focuses on the number of shares traded in a given stock overall.

02:22

so if whatever.com had 20% of its total shares outstanding trade in a given day [power point explanation]

02:29

like it had 20 million shares outstanding in four million suddenly

02:33

traded in that day versus its normal one percent of shares like on 20 million

02:38

normal would be two hundred thousand something like that, so it's had 20 times

02:42

the volume in a given day, well what does that mean ?well clearly something

02:45

happened for there to be 20 times the normal volume of trading. is there a take [man speaks to camera]

02:51

out rumor? Is Google buying it? did they do a secondary and insiders dumped? was

02:56

there some good news? bad news? what happened ? what did the stock do? did they

02:59

have a great quarter and tons of investors now believe this is

03:02

sustainable and they all want in so they buy the stock and it goes up big that

03:06

day? or did the company miss a quarter and then they all sell it down by 50% by

03:11

the time the day is done, sell more to more sell like that? while stock moves on

03:15

big volume usually imply something intrinsic about the stock. something

03:19

really good has usually happened and the big volume means that the best analysts

03:24

and investors on Wall Street are reviewing the data carefully. the market [man examines computer charts]

03:28

metrics. and in whereas a stock might soften 5 ,10 even 20 percent on very low

03:33

volume which means that do it's likely people are just ignoring it more or less,

03:38

and that stock just fades downward until some analyst rings a bell that whatever.com [man walks away from frowning woman]

03:41

has suddenly gotten really cheap and then everyone buys it bids it up to

03:46

its proper price. and well that's what makes a market. so it doesn't matter if

03:50

you're selling radishes or whatever product whatever.com happens to make

03:53

this week, market metrics will help you determine if your company is an

03:56

unbelievable success, or if, you know the most epic of fails. [man walks past with baskets of produce]