Investment and Financial Planning Essay Example | Topics and Well Written Essays - 1000 words

Investment and Financial Planning - Essay Example Probably the most important data to a growth investor is the company's earnings per share. Earnings are bottom-line profits the company earns, after all expenses and taxes. When earnings are divided by the number of shares, you get earnings per share. Microsoft stocks was first sold to the public in 1985, and in that year it had just a penny of earnings per share. But by 1989, earnings had increased four times, to four cents a share. From then on, Microsoft earnings went on a steady climb, reaching $1.71 per share in 2000. What happened then A recession combined with a technology sector collapse caused the era of straight-up growth to end. Is Microsoft still considered a growth stock Yes, by most it is. The stock market still values Microsoft based on an expectation that growth will resume, although not at the pace of the company's early years. Most growth companies pay little or no dividends. Until recently, Microsoft paid none. So, earnings measure the money the company can reinvest back into its own growth. Earnings per share are reported quarterly, and they are the best measure of success for growth investors. A steady pattern of quarter-to-quarter earnings growth should create strong upward movement in share prices over time. But the opposite is also true. When a growth company slows its earnings growth rate, the share price can take a big tumble because investors lose faith in future growth. Growth stocks tend to be more volatile than the market as a whole, because they are in high demand when earnings keep growing and can fall out of favor when earnings falter. The sectors that are most widely followed by growth investors include technology, pharmaceutical and retailing. Value Investing Value investing is the other side of the stock market coin. Value investors believe almost the opposite of growth investors. Instead of looking for growing companies that are the stock market's darlings, they look for out-of-favor companies selling at attractive values. These values are most often defined by below average price/earnings ratio and below average price/book ratio. The slide shows both types of data for Eastman Kodak, a company that is widely known and followed. But for various reasons, Eastman Kodak has fallen out of favor with investors. Why do you think that might be so (VOLUNTEERS) Price/earnings ratio is calculated by dividing the current