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Finance: What are Market Metrics? 187 Views


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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.

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Transcript

00:00

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

00:09

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

00:14

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

00:18

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

00:21

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

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]

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