4 (PE). Finding Basic Stock Terms Video Lecture | Become an Expert: Value Investing - Business Basics

welcome to the course one unit one
lesson for practical exercise and in
this exercise we're going to be looking
on MSN money to find some of the common
stock terminology that we've learned
throughout the first four lessons so
let's get started okay so here we are at
msn.com
I'm not using MSN for any particular
reason I just kind of know where the
terminology is at and it's easy for me
to find it kind of quick so that's why
I'm using MSN but you could use Google
or any other site but this will help you
find some of the terminology that we've
been talking about in the first four
lessons so in order to do that you just
go here to about halfway down the page
and you're going to go ahead and click
right in here where it says market
update and so the company will use is
Johnson and Jones and so I'm just going
to type in J&J because that's the stock
ticker and then I hit enter okay so we
arrive at the johnson and johnson main
page where it has all this all these
numbers and information so i'm going to
kind of walk you through in the same
systematic order that we learned through
each lesson so in lesson two we first
talked about really the income statement
and so if you remember I said that
there's three documents that every
business has to have the first one was
the income statement the next one was
the balance sheet and then the last one
was the cash flow statement now as you
look at this page if you follow my
cursor down here under financials over
here on the left hand side you'll see
that there is the income statement the
balance sheet and the cash flow
statement so those are those three
documents that I told you we're really
important so let's go ahead and start
off by going to the income statement and
this is what we really learned in lesson
two so if you want to go back and review
that this is where you would find this
all that so you go to the income
statement now if you remember the slide
that had Nancy's business and we kind of
followed the money through her business
in one hour and then we did it for one
year that's where these numbers and this
terminology is really coming from so as
we look at this as you look at this
income statement for Johnson & Johnson
you'll see at the very top there's
interim and then there's annual and so I
have it set up on the annual but you
could click it on interim if you wanted
the most recent quarter but if you do
annual that's each year so 2007 2008
2009 10 11 if you do enter them it'll
break it down by quarter okay so if you
remember the total revenue was the money
that came into the business before any
of the costs were subtracted so there
there's that number that's your total
revenue for Johnson & Johnson this is
sixty five billion dollars because these
numbers are in millions okay so if you
scroll down to the bottom is it'll show
you that those numbers are in millions
right here see financial data and USD
values and millions so whenever you look
at that number it's actually in billions
okay so that's 65 billion dollars the
other term that we saw was the cost of
revenue so here was that cost of revenue
that came out and then when you subtract
that out this is the gross profit bit
the terminology that I'm kind of
highlighting here is the important stuff
that you really don't understand so the
total revenue is what comes in the cost
of revenues when you would subtract out
of that and then you also have your
operating income which is added in but
the bottom line figure after we went
through that whole process here comes
your tax before the taxes after the
taxes but the bottom line figure that we
said was really important to understand
from the income statement was the net
income that's the number you really got
to understand so as we look at Johnson
and Johnson and we look year-to-year
look at how their net income had changed
from 1010 billion to 12 billion 12
billion 13 billion and then in the last
year they've actually had kind of a
rough year with nine billion dollars so
this is the net income and that is the
that's the bottom line profit that they
made after they paid all their employees
paid all the people that was the profit
that was left in the business for one
year was nine billion dollars so the
next thing we're going to look at now
that's for the whole business now we
didn't break that down per share I'm
going to
going to break everything down per-share
next which is what we learned in the
last lesson in lesson 4 so in lesson 3
we learned about the balance sheet okay
so we come back over here to the
financials and we just covered the
income statement and the next document
that was really important was the
balance sheet because this showed us how
much the company is worth if it died
today so if they ended business Johnson
Johnson packed up their bags fired their
employees paid all their debts and all
that that's the the bottom line of the
balance sheet is going to tell us that
figure which was the equity so let's
click on balance sheet same thing as
before if you look here we could do
interim or we could do annual I would
recommend clicking it on interim because
that's going to give you the most
current quarter of what the company's
worth right now you don't want really
want to know what the company is worth a
year ago you want to know what it's
worth right now in the most recent
quarter so as we go down the balance
sheet if you remember I told you that
the balance sheet was made up of assets
and liabilities okay so the total assets
right here listed and these numbers are
in millions as well so that's 113
billion dollars is the total assets that
the company is claiming on their balance
sheet as we go down we can see the total
liabilities right here which is 56
billion dollars so just looking at that
we can see the total assets are almost
double with the liabilities are and
that's a good thing so if you keep
scrolling down as you get down to the
bottom the important number the
important number on the balance sheet is
down at the bottom which is the total
equity and all they did was they took
the total assets minus the total
liabilities and you end up with the
total equity which is 57 billion dollars
okay that's what the company is worth in
total if you added up all the shares of
this business it's worth fifty seven
billion dollars on the books okay so
let's take this to the next step so now
we understand what the whole business is
worth with their net income and also
our equity which were the two really
important terms to understand and now
what we're going to do is we're going to
divide the business up by two billion
shares right here is your total common
shares outstanding you see it says to
two billion seven hundred and twenty
four million remember all these values
are in millions so let's divide up this
company by that many shares and let's
start seeing what one share is worth
when we look at the equity and we look
at the net income so in order to see
that let's go back to the top level page
so I'm just going to go back on this
type in J&J to take me back to the top
level page and so here I am back at the
top level page again and as we scroll
down we can look at the EPS and if you
remember the EPS represented when we
looked at the whole business that was
net income when we break it down to just
one share that's the earnings per share
the EPS and that is three dollars and 48
cents so we took all those shares
outstanding which was two point seven
five billion shares outstanding there's
the number again right there
the EPS the earnings for one share was
three dollars and 48 cents now the book
value which is from the balance sheet if
you take that balance sheet and you look
at the equity and you divide it out all
these shares it would give you the book
value unfortunately they don't have the
book value listed on the top page you
have to go to financial highlights I
believe let me click there okay and then
right here you can see the book value is
listed now if you wanted to calculate
the book value just go to that balance
sheet you take the equity divided by all
those shares and it's going to give you
this number right here it's going to
give you the book value so the book
value for this company is 20 dollars and
95 cents
okay if you remember we talked about the
margin of safety that was associated
with a business was the difference
between this book value and its market
price so let's go to the market price
which will be the last thing that I show
you here and as we look right up here is
your market price of $64 and sold onson
and johnson it's
just 64 dollars and 22 cents then you'd
have 20 dollars and 95 cents of book
value so you're Marge and a safety there
let's say the earnings and the company
started dropping and people didn't think
it was worth sixty four dollars and 22
cents you can see that number come down
here and start approaching this book
value and that's that's your margin of
safety so the closer that this book
value can be to the price here the less
risk that you're assuming because the
price isn't going to go much lower than
the book value as long as that earnings
remain positive and that's really kind
of the key thing to understand and
there's our earnings per share or the
EPS which is 3 dollars and 48 cents so I
told you that was gonna be the last term
that I showed you but I lied I've got
one more that we learned which was the
price to earnings the p/e ratio and I
want to show you that so just look if
you if you were going to do the math the
price is 64 dollars and 22 cents and you
take that and divide it by this EPS
which is the earnings per share which is
right here which is 348 if you just if
you don't want to do the math and you
just want to look it up go back to the
top level page and when you scroll down
here you're going to see the price to
earnings ratio right here the PE is 18
dollars and 40 cents and if you remember
that little phrase that I taught you
with the PE so for every $18.40 I spend
buying Johnson and Johnson I can expect
one dollar and return one year later so
there's a there's a practical exercise
of a company Johnson & Johnson and how
all those terms that we learn through
Nancy's business are all now related
into a real company that is a huge
company and hopefully a lot of this
stuff is starting to make sense for you
and if it's not just go back to the very
first lesson go through these four short
lessons and maybe it's maybe this
practical exercise will make more sense
if you didn't really capture everything
this this first go-around so I'll see
you in lesson five and thanks for
watching