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CHAPTER THREEFAITH IN CORPORATIONS TRICKS OF THE TRADE

The greatest management sin today is not to report a loss, but to report a loss not expected by Wall Street.

DAN BERNHARDT, ECONOMIST,

UNIVERSITY OF ILLINOIS

CORPORATE EARNINGS DRIVE STOCK PRICES

STOCK PICKERS love to compare companies by analyzing easily obtainable financial statistics. One of the most popular measures is a simple ratio. It is calculated by dividing the current price of a stock by its last twelve months’ earnings per share, and is commonly referred to as the price to earnings (P/E) ratio.

Corporations with similar growth prospects usually have similar P/E ratios. The organizations that show the best earnings within the group are going to have the highest stock price. ...

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