How to Calculate Stock Valuation

by Billy Williams ; Updated July 27, 2017

Items you will need

  • Pen and paper
  • Computer

Lots of stocks look like good investments at first glance but it can be confusing to know whether a stock is a good value for investment or if it's worth its current price. If you don't know how to calculate stock valuation, it can be a real obstacle to investment success, but there are few simple rules to make it easy.

Determining Value

Step 1

Determine a stock's value by entering its name in a financial search portal such as StockCharts.com. It will pull up the current information on the stock's price action as well as a current chart. Take notice of the number of shares issued on that company and write that total down.

Step 2

Scroll down to the "Financials" section and click the "Balance Sheet." On the Balance Sheet, scroll down to the bottom of the sheet and take note of the current Net Tangible Assets and write that down. The Net Tangible Assets is the hard asset value, which is arrived at by adding all assets and then subtracting all liabilities. Write that figure down.

Step 3

Take the total Net Asset value and divide that by the number of shares issued on this company. That final number is the true stock price value for the shares on any publicly traded company.

Step 4

Observe and take note of the ROE or Return On Equity of the stock. Filter out any stock candidate that doesn't have at least a 30% ROE. This is the return on the company's assets and is a good indicator to the competency of the current management as to their ability to get the best returns on the company's equity. Discard any stock as a potential investment that has less than 30% ROE.

Tips

  • Further filter out companies that are not the number one or two competitor in their respective industry. Make sure that they have products and services that are in demand now and in the foreseeable future to insure that they will continue to be strong performers, as well as good values to invest in today.

Warnings

  • Always diversify your stock holdings so in the event one stock under performs, it will not drag down your overall return. If the stock performs poorly don't hesitate to sell it to take advantage of another opportunity.

About the Author

Billy Williams has been writing since1988 on a variety of topics but focused in business/finance. WIth over 2 decades of experience in banking, real estate, business development, sales, and trading the stock market as well as having been published in "Futures Magazine." Williams holds a Bachelor of Arts in finance from the University of Texas Pan American.

Photo Credits

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