Module 5
What Makes A Good Stock?
Picking a good stock involves taking the time to research a company and understand its financials in order for investors to gain insight into a company's health.
In this module, we examine the long-term potential of a company by looking at factors such as competitive advantages, industry trends & technology shifts.
Module At A Glance
Grade Levels:
8th - 12th
Est. Length:
2-5+ Hours (26 slides)
Activities:
4 Activites
Articles:
6 Articles
Languages:
English & Spanish
Curriculum Fit:
Math, Business, Economics, CTE, Social Studies
Standards Alignment:
CEE National Standards, Jump$tart National Standards & Relevant State Standards
Guiding Questions
- What are dividends and why would a company issue them?
- Why do investors want to own companies that pay dividends?
- What types of companies pay dividends and why?
- What are some of the quantitative and qualitative ways to analyze different investments?
- How does a P/E ratio help you determine the value of a company’s stock?
Enduring Understandings
- Dividends are divisions of profit between stockholders.
- Qualitatively and quantitatively analyze a company and determine if it fits in your investment criteria.
- P/E ratios are used to compare companies in similar industries to determine future performance.
- Calculating a P/E ratio, ROE, and D/E ratio and what these different ratios actually mean.
Module Vocab & Key Topics
- Stock
- A share of a company which is sold to investors and represents ownership in the underlying company.
- Revenue
- Income generated from selling goods and services. These returns are from normal business operations so it does not include windfall gains or tax credits.
- Earnings
- Returns from a company’s activities after expenses have been subtracted. This may or may not include tax expense depending on the context.
- Dividends
- A portion of a company's earnings distributed to its shareholders, typically paid in cash, but can also be in the form of additional shares of stock.
- Dividend Yield
- Dividend Yield is a financial ratio that shows how much a company returns in dividends each year relative to its share price.
- Blue Chip Stocks
- Blue Chip stocks are well- established, large companies with a history of stable earnings. These companies often pay regular and growing dividends, providing a steady stream of income.
- Growth Stocks
- Growth stocks are shares in high-growth companies, which typically reinvest their profits back into their business, rather than pay dividends.
- Penny Stocks
- Penny stocks are very low-priced shares of small, often speculative companies. These stocks rarely pay dividends, as these companies need to reinvest any profits to fuel growth.
- Price-to-Earnings (PE) Ratio
- A ratio used to value companies which measures current share price against per share earnings to help determine if a company is over or undervalued.
- Return On Equity (ROE)
- This percentage is calculated by dividing the shareholder's equity held in a company by the company's net income for the past year, helping providing an indicator of financial performance and profitability.
