Data Warehouse Design Solutions

12

KEY MEASURES AND RATIOS

Each day, thousands of people turn to the financial pages of the newspaper and look up the closing price of their favorite stocks. Most people can approximate the stock price of a company in which they have invested, and some may even know the price-to-earnings ratio or market capitalization of the same company. Following a stock price is like following the statistics of your favorite baseball player or the ratings of your favorite TV show. It is a simple and accessible number. Unfortunately, if the only measure you follow is stock price, your first indication of trouble in a company is probably decline in that stock price. In recent years, especially for investors in high-technology companies, relying on this indicator has been painful. Companies routinely lose 10 percent of their value in a single trading session. Single-day losses in value of 20 or 30 percent are no longer rare.

How does an investor foresee such a turn in fortune? The investor must follow a portfolio of measures, supplemented by analyst recommendations, financial reports, and other information from the company. From this information, the market at large projects performance and buys or sells shares in company. The information cycle runs quarterly, with a company forecasting results at the beginning of the quarter and reporting results at the end of the quarter. Interim reports are used to reset expectations, and the stock price often responds to these reports as dramatically as it ...