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Reading the numbers in equities

Not about picking stocks, but about what the reported numbers mean.

⏱ About 2min read ·Information updated 2026-09-22

What a share is

A share is a certificate of owning part of a company, so its value fundamentally comes from the company's future earnings. The price is set moment to moment where buyers meet sellers, moving with how those people view the future. Today's price is not today's results but the sum of expectations about what is ahead.

Price and value are different

A high share price and an expensive share are not the same statement. The price of one share depends on how many pieces the company was divided into, so prices alone cannot be compared. To see the size of the whole company you need market capitalisation: price multiplied by share count. Comparing similar companies also uses multiples of earnings or assets rather than the share price.

  • Share price: the price of one piece, unrelated to company size
  • Market capitalisation: price times shares, the market's value for the whole
  • Earnings multiple: how many years of current earnings the price represents
  • Book multiple: how many times the accounting net assets

Numbers carry a date

Reported metrics are mostly calculated from past results, while price reflects the future. A low earnings multiple therefore cannot be declared undervalued on its own, because the market may expect earnings to fall. Finding why a number is low or high matters more than reading the number.

What diversification does

Concentrating in one name pays well when right, but one company's failure can cause an unrecoverable loss. Diversification is not a device for raising expected returns but for lowering the chance of losing heavily at once. Concentrating assets in the shares of the company you work for is particularly risky, since salary and assets then share the same exposure.

What this topic does not cover

The pieces here explain what indicators compute and what each line of a financial statement means. They do not cover which stock to buy or what phase the market is in. Decisions fitted to individual circumstances and risk tolerance belong with a qualified professional.

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