A stock calculator can help you understand a number of things, including valuation of a stock or a potential acquisition price of a company. Our free guide will show you how to use a stock calculator and includes a free downloadable stock calculator for your own personal use.
Free Stock Calculator: Start Investing Your Money Wisely
After creating my dividend calculator, I wanted to provide a solution for all investors in the stock market. Stock investing is clearly a very lucrative venture. Investors need to have a stock calculator to measure the value of their investment.
If you think you can’t invest because you need additional savings. Well, nowadays anyone can start investing since apps will give you free shares of stock for signing up.
This can help you invest your money more effectively and efficiently.
Before buying stocks, you need to recognize the intrinsic value of the stock calculator and ensure that you can invest profitably.
I created a book titled Dividend Investing Your Way to Financial Freedom to help you increase your income and build wealth at the same time.
The book hits on the following themes for you to achieve financial freedom through dividend investing:
- Improve your portfolio returns
- Understand the pros and cons of a dividend investing approach
- Develop and craft your own dividend investing strategy
- Build wealth through a long-term compound interest plan
If you want a sample of the book, you can download it here.
In our guide, we will show you exactly how to use a stock calculator to make better decisions about your potential investments. Use the below downloadable stock investment calculator alongside your Personal Capital free investment tracker to gain insights on your portfolio as time goes along.
Why a stock investment calculator important
You need to use a stock calculator because it comes in handy when investing in stocks. A stock calculator can help you determine the profits earned and losses incurred from your stock investments.
An investor can also estimate the stocks calculator return on investment figures as well as the break-even share price. The calculator can help you determine undervalued stocks and an appropriate return for the amount of risk that you are taking.
Business executives seek the value of the stock when they are planning to acquire a company and maybe when they want to know a competitors weakness. The management tries to maximize the share price to retain the shareholders and also to ward off any takeover attempts.
A stock investment calculator can help a stock investor in stock valuation. Stock valuation in financial markets involves calculating the theoretical values of the stocks of a company.
The importance of stock valuation methods is to forecast the movement of the market prices in the future and find out the potential market prices.
It’s one of the smartest investment techniques to ensure you have a stable, profitable portfolio.
The investor aims to profit from the change in prices. Thus, the investor targets the stocks that are undervalued (based on the theoretical values) and buys them and consequently sells the stocks that are overvalued.
This is with an expectation that the undervalued stocks prices will rise while the overvalued stocks prices will fall.
Using the stock calculator with dividend investments can also help an investor in creating wealth with a dividend reinvestment option.
How a Stock Calculator Works
So, how does a stock calculator work? A stock calculator is very simple to use.
Just follow these five easy steps:
- Enter the total number of shares purchased
- Then, enter the purchase price per share or the selling price per share
- Input the commission fees for buying and selling the stocks
- Specify the Capital Gain Tax rate where it is applicable and then choose the currency from the drop-down list
- Click on the ‘Calculate’ badge to evaluate your profit or loss.
Here is the stock calculator basic formula:
Profit (P) = ((SP * NS) – SC) – ((BP * NS) + BC)
Where:
- NS represents the number of shares,
- SC represents the selling commission,
- BP represents the buying price per share,
- SP represents the selling price per share, and
- BC represents the buying commission.
It’s a pretty straightforward formula, you just need to take out any commissions to determine your profit on the spread. It’s basic, yes.
However, in private markets transactions, the commissions are often much higher.
You can use the stock calculator for both public and private transactions.
This stock calculator returns will help you make better assumptions about what you need to acquire and sell the stock price to hit your desired profit hurdle.
The stock calculator with dividends would just include any dividend income received marked as profit and added to your spread.
A more advanced strategy is to also pair your dividend income with options. These options strategies can boost your portfolio income and take your portfolio to the next level.
Download Our Free Stock Investment Calculator
Download our free, easy to use stock investment calculator now to start investing smarter with your money.
The calculator is simple.
However, it has a BIG impact. It’s a basic analysis that allows you to take a step back from investing your money.
Realize what will be your true profit on your invested capital.
Wait? Your profit is always determined by the value of the stock price at any given time. That is the key input, so how do you determine a stock’s value?
There are three commonly used methods on Wall Street for determining the value of a business. These are the basic ones.
Of course, there are more complex ways to do these analyses.
However, the below methods will give you a firm understanding of what are the generally accepted methods for valuing a stock.
Bonus: Valuation Methods for Determining a Stock’s Value
There are various methods to help find the intrinsic value of a company. These are the most fundamental ways to value a company and include a degree a reading company financial statements.
Let’s look at some of the generally used methods.
The cost approach focuses on what it would cost to build a business. This approach is used primarily by the finance professionals to value the company stock as a going concern. The market approach includes comparable analysis and the precedent transactions.
The discounted cash flow (DCF) approach, on the other hand, involves the intrinsic valuation and is one of the best methods to value stocks. Let’s look at each approach in details.
Here are three methods commonly used to calculate the stock value:
If you want to value stock as a going concern, you can use these three basic valuation methods.
They are used in investment banking, leveraged buyouts (LBO), private equity, in corporate development and mergers & acquisitions.
The most commonly applied valuation methods for stocks are:
- Comparable company analysis
- Discounted (DCF) analysis
- Precedent transactions
1. Comparable Company Analysis
The comparable analysis is also known as the comps’ analysis, peer group analysis, equity comparable, trading multiple or public market multiples.
With comparable company analysis approach, the investor compares current business with other businesses’ trading multiples including the P/E, EV/EBITDA among other ratios. You’ll have to have a firm understanding of the various financial ratios and what they mean. Here are some of my favorite financial ratios for investing.
The most common one is the multiples of the EBITDA. This comparable valuation method offers an observable business value depending on the value of the company at the time. Since it is easy to calculate way, it is the most widely used approach.
Calculating the value of a stock using the formula for the price-to-earnings ratio is very simple.
Here is the basic formula: Price-to-Earnings (P/E) Ratio = Stock Price/Earnings Per Share
Therefore: Stock Price = Price-to-Earnings Ratio/Earnings Per Share
When you decide to calculate the current stock value, you must ensure that the earnings per share number that you are using are the most recent four quarters of earnings which are known as the trailing 12-month earnings per share of the company.
Most analysts use the pro forma EPS. Why? The stock market is forward-looking. Not historical.
To calculate this number, you need to use the net income that omits any one-time losses or gains and also omits any non-cash expense such as the goodwill amortization. However, never omit the non-cash compensation expense since it does not affect the earnings per share.
Then, the analyst divides this number by the total number of the fully diluted shares outstanding. Sites like Yahoo! Finance or FINVIZ offer historical EPS figures and forecasts for the next one to two years.
2. Precedent Transactions
Another form of relative stock valuation method is the precedent analysis. This method involves comparing the current company values to similar businesses that have recently been acquired or sold in the same industry.
The transaction values can consist of the premiums of the takeover included in the price for which the business was acquired. The values stand for the en bloc business value and are useful for mergers and acquisitions transactions.
Since they may be stale dated, then it means that they do not always represent the current market after a while.
The precedent transactions method is not as common as the comparable analysis. Why?
You only can’t always find good data on transactions in the marketplace. There are usually a few good public transactions, but as far as private transactions, data is limited.
See Related: Best Value Investing Books to Read Now
3. Discounted Cash Flow (DCF) Analysis
The discounted cash flow (DCF) is another common income valuation method analysis. The method represents the intrinsic value of the stock approach. This analysis involves discounting of the profits including, earnings, dividends, or cash flows that the stock will offer to the shareholder in the foreseeable future, and also the final value on disposal.
The analyst, in this case, predicts the un-levered free cash flow of the business into the future and then discounts it back using the current weighted average cost of capital (WACC) of the firm.
The DCF analysis approach requires a huge amount of attention to detail and analysis and is thus performed by building a financial model in an excel sheet. The analysis needs one to make a lot of assumptions, and the procedure is lengthy and takes time to produce the highest and most accurate value.
The analyst can thus forecast the value depending on different scenarios and even experiment with a “what if “stock calculator.
The DCF is usually the total sum of the parts analysis in which case the various business units are modeled separately and then added together.
To do that, you’d need to value each business segments cash flows separately using a different cost of capital and capital stack assumptions for each business segment.
Resources to Consider to Help You Conduct Fundamental Analysis
Not everyone can simply run a DCF analysis or comparable company analysis with every single investment opportunity.
There are certain resources out there that will help you make money in the stock market and do most of the grunt work for you.
- Finbox: Finbox has a number of different models and plugins that will help you start making money in the stock market. They actually have downloadable versions of the valuation methods described above. Make your life easier! Oh yeah, if you use my link you’ll get $5 in free credit.
- Motley Fool Stock Advisor: Motley Fool’s Stock Advisors will simply send you stock picks right to your inbox. Some of their stock picks have had some very outstanding success. Read more about their platform in my Motley Fool Stock Advisor Review. Use my link for a limited time only price offer of $19/month.
- Robo-Advisors: There are some amazing FREE robo-advisors out there like M1 Finance and Wealthsimple. A robo-advisor will make all the decisions for you! This is literally passive investing at it’s finest. There’s no need to worry about finding hidden stocks. Just continue to invest with them and they will make all the decisions for you.
I don’t mind paying for resources that will arm me for success. After all, we end up investing thousands of our hard earned dollars.
We might as well use the best tools.
Conclusion on Stock Calculator
A stock calculator is a tool that can help you make smarter decisions about investing your money. In today’s age, it’s important to be armed with the best tools possible for success.
I’d rather work smarter rather than harder with investing. Let’s start to make investing easy.
Have the right protocols and information flow set up to help you approve or deny potential stock investment opportunities.
I believe that now you have gathered sufficient knowledge on how to use a stock calculator from this article.
You can use a simple stock if you want to find out the value of the stock and make an informed decision of whether to buy or sell the stock. Avoid the common myths associated with investing and get started now.
Will you use our stock calculator? Do you have any follow-on questions? Let us know in the comments below. We’d love to help.
Related Resources:
- Our best robo-advisors compared, learn how to invest passively
- How to use a 401(k) fee calculator to save on retirement fees
- A 5-step formula to live off dividends forever
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