ContentsTitle
Contents

Please read the README.TXT file (or similar file) for updates on fixes and enhancements.

About Registration, Copyright

Getting Started, Tutorial

Definition of Terms - Growth, Term, Yield

Formula

Compute Stock Price

Conversions

Exit


Copyright, Registration, Technical Support
Copyright, Registration, Technical Support, User Guide

This system was developed by Informatik Inc, P.O. Box 868, Devon, Pennsylvania 19333.  For information on program modifications, systems integrations and custom applications, please contact Informatik Inc.

This is a copyright-protected shareware product.  If, after review and evaluation, you like the software, please register and pay the U.S. $19.00 registration fee plus $3.50 shipping and handling.  Upon registration and payment of the registration fee, Informatik Inc will send you the latest diskette, a printed User Guide and a registration certificate.  Registered users will receive lifetime technical support and are entitled to free software upgrades during first year.  Shareware is based on trust, and we hope that all users will register.

To register

From the About menu, choose Registration, Copyright and follow the instructions.

To obtain technical support

From the Help menu, choose Technical Support and follow the instructions.

© 1994-1995 Informatik Inc

All rights reserved


Compute (Validate) Stock Price

To calculate the theoretic stock value

1.	Press the Clear button.

2.	In the Table of Parameters, enter the Annual Earnings of the stock.

To  convert P/E ratios to Annual Earnings, choose P/E to Earnings from the Convert menu.

3.	Enter the Annual Dividends, if any.

To  convert P/E ratios to Annual Earnings, choose Yield to Dividends from the Convert menu.

4.	Specify the required yield for the investment.  Twenty percent is entered as 20 (NOT 0.20).  Do not enter the percentage sign.

5.	Specify the Growth Rate (estimated sustained annual growth).  Ten percent is entered as 10 (NOT 0.10).  Do not enter the percentage sign.  See paragraph 7 below)

6.	Specify the number of years of estimated sustained growth (term).  (See paragraph 7 below)

7.	The growth rate and term (paragraphs 5 and 6 above) can be entered by adjusting the coordinate lines in the Growth and Term matrix.  Point to the red growth line or the blue term line, press the left mouse button and drag the line(s) up, down, left or right.  Release the mouse button.

8.	You can move to the next cell by pressing the Enter or Up Arrow key.  You can move to the previous cell by pressing the Up Arrow key.

9.	The values must always be entered in full.  After entering a cell, the first keystroke, clears the cell.

10	The values in the cells can be increased or reduced by pressing the Up Arrow or Down Arrow button on the screen (not on the keyboard).  The values are increased or reduced by one (1) integer.

11.	The theoretic stock value is re-calculated each time you make a change.

12.	Click the Detail button and review the detail of the calculation.


Getting Started, Tutorial
Getting Started

Quick Tutorial

Five bits of information are required for the calculation of the fundamental stock value:

- Annual earning in dollars

- Annual dividends in dollars

- Estimated annual growth rate

- Number of years of sustainable growth (term)

- Required yield (return) for this investment  (target yield)

The data can be entered in one of three ways:

1.	Direct keyboard entry into one of the five data cells.

2.	The growth rate and term can be entered by dragging the coordinate lines in the Growth and Term matrix.  Simply point to the horizontal red growth line or the vertical blue term line, press the left mouse button and drag the line up, down, left or right.

The target yield can be selected from the Target Yield pull-down list.  Rates from 1 to 100 percent are available.

3.	To increase or decrease a number, press the up or down arrow button.

You can navigate the screen in one of the following ways:

1.	Click a cell.  The cell becomes active and is highlighted in blue.

2.	While in one of the five cells, press the Enter key to move to the next cell.

3.	While in one of the five cells, press the down or up  arrow key (on the keyboard, not the arrow button on the screen) to move to the next or previous cell.

Entries must always be made in full.  When you access a cell, the first keystroke deletes the previous entry.  Only numbers, period signs and back-spaces are permitted.

Earnings and dividends must be entered as currency values.  If you do not know the currency value but you know the dividend yield or PE ratio, you can use the conversion functions in the Convert menu.  See Conversions


Conversions
Convert Yields to Currency

To convert a P/E ratio to annual earnings

1.	Click the Annual Earnings cell.

2.	From the Convert menu, choose Convert P/E to Earnings.  The Conversion window appears.

3.	In  the P/E Ratio field, enter the P/E ratio.

4.	In the Stock Price field, enter the current stock price.

5.	Press the OK button.

To convert a dividend yields to dividend payments

1.	Click the Annual Dividends cell.

2.	From the Convert menu, choose Convert Dividend Yield to Earnings.  The Conversion window appears.

3.	In  the Dividend Yield field, enter the yield, e.g. 3.5 (not 0.035).

4.	In the Stock Price field, enter the current stock price.

5.	Press the OK button.


Exit System
Exit

To exit system

From the Exit menu, choose Exit System, or press the Close button.


Formula

The computation of the stock price is based on the following formula:

Definitions:

Earnings:	Current annual reported net after-tax  earnings per share.

Yield:	The targeted and required rate of return for the stock investment.

Term:	The number of years of expected sustained growth in Earnings.

Growth:	The rate of growth in Earnings.

1.	The  Earnings are compounded at the Growth rate for the Term to produce the estimated (annual) Earnings at the end of the projected Term (Future Earnings).

2.	The Future Earnings are capitalized at the Yield rate to produce the stock value at the end of the projected Term (Future Stock Value).

3.	The Future Stock Value is discounted back to present value dollars at the Yield rate to produce the current stock value before dividend receipts (Net Stock Price).

4.	The current dividends  are assumed to grow at the Growth rate.  The total stream of dividends over the Term is discounted to the present value using at the Yield (Net Dividends).

5.	The calculated stock price is the total of Net Stock Price plus the Net Dividends.


Definitions: Growth, Term, Yield
Definition of Terms: Growth, Term, Yield

Growth, yield and term are the three pillars of the stock price computation.  The overall validity of your assumptions is critical in assessing the stock value.  The current annual earnings provide the dimension.  Dividends are considered in the calculation for their impact on the cash flow timing.  Earnings are net after tax.

How fast will the earnings grow , for how many years can you reasonable expect this sustained growth (term), and what yield do you require for the investment, with due consideration for both risk and profit potential, considering alternate yields available for comparable terms?

None of the three elements can be determined with certainty, but comfort zones can be established.  The type of industry, the economic cycle and outlook, competitive forces, the maturity of product, trends, the relative performance of the company within the industry, legislative developments, etc. may give some indication on growth rates and term. The yield is a product of the uncertainty of the projections, the risk and the expected interest levels for the term under consideration.

The purpose of the software is to see how the three parameters interact with each other and to test "what if" situations.  The software will not give you absolute and reliable stock values; there are far too many variables, but it provides a useful tool to analyze and understand the basic currents that affect the stock price.

Growth:	The average annual growth rate expressed as a percentage.

Yield:	The required return on the investment.

Term:	The number of years of continued and sustained growth at the assumed growth rate.