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Finance- a la shmoop. what are market metrics? hmm well the number of radishes we sold

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on aisle four last week that's a market metric. the number of spills on aisle 12 [mop cleans up wine spill]

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last month well that's a market metric. the number of customers who came into

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the grocery store wearing clogs last year, that's a market metric. okay so

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that's a different market a grocery store but the concepts are the same. [produce shown]

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instead of shopping for discounted radishes, well investors are shopping

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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like it had 20 million shares outstanding in four million suddenly

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

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

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

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

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

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

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

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

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

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

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big volume usually imply something intrinsic about the stock. something

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

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

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

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

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

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

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

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

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

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

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