CHAPTER EIGHT

Market Performance Measurements

THIS CHAPTER COVERS THOSE measurements that are of most use to outsiders who are reviewing a company's market performance. It covers not just the popular price/earnings ratio, but also other issues that affect earnings on a per-share basis, such as several variations on the stock options to common shares ratio. It also addresses several capital-based measures, such as market value added and the cost of capital, which are driven by the equity and debt markets' perception of a company's valuation. The measurements discussed in this chapter are:

Insider Stock Buy-Sell Ratio Institutional Capture Rate Market Value Added Enterprise Value/Earnings Ratio Stock Options to Common Shares Ratio Cost of Capital Sales to Stock Price Ratio Price/Earnings Ratio Capitalization Rate

INSIDER STOCK BUY-SELL RATIO

Description: This ratio is used by outside analysts to determine whether company employees are aware of information that is not available to the public, which may lead a disproportionate number of them to buy or sell stock in expectation of changes in company value. For some stock traders, this is a key part of their stock-pricing models.

Formula: Divide the number of stock sale transactions by company insiders by the number of stock purchase transactions by company insiders. If the resulting percentage is less than one, then the presumption is that insiders feel the company's value will increase. Conversely, a percentage greater than one ...

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