How can the ROE on a stock be more than 100%?
An operating margin will not compare with ROE. If a company has even a small margin on a large turnover and has a comparative lower shareholder equity, it ROE will be much higher. One ratio alone can not analyse a company. You need a full set of ratios and figures. A company's Return on Equity (ROE) is its net income divided by its shareholder's equity.  The shareholder's equity is the difference between total assets and total liabilities, and is not dependent on the stock price. What it takes to have a ROE over 100% is to have the income be greater than the equity.  This might happen for a variety of reasons, but one way a high ROE happens is if the shareholder's equity (the divisor) is small, which can occur if past losses have eroded the company's capital (the original invested cash and retained earnings).  If the equity has become a small value, the income for some period might exceed it, and so the ROE would be over 100%. Operating margin is not closely related to ROE.  Although operating income is related to net income, to calculate the margin you divide by sales, which is completely unrelated to shareholder's equity.  So there is no relationship with ROE to be expected.  Operating margin is primarily dependent on market conditions, and can be substantially different in different industries.
"A company doesn't offer up 100% of its shares to the market.  There's a float amount of varying significance, maybe 30% of the shares are put up for public offer.  Generally some amount of current shareholders will pledge some or all of their shares for offer to the public.  This may be how the venture capital, private equity or other current investors cash out their initial investment.  The company may issue new shares in order to raise money for some initiative.  It may be a combination of existing shares and new. Additionally, a company may hold some ""treasury shares"" on its balance sheet.  In this instance fluctuations in the share price directly affect the health of the balance sheet. As far as incentive goes, stock options to management and C-Suite employees keep everyone interested in an increasing stock price." "Your math is correct. These kind of returns are possible in the capital markets. (By the way, Google Finance shows something completely different for $CANV than my trading console in ThinkorSwim, ToS shows a high of $201, but I believe there may have been some reverse splits that are not accurately reflected in either of these charts) The problems with this strategy are liquidity and timing. Let's talk about liquidity, because that is a greater factor here than the random psychological factors that would have affected you LONG LONG before your $1,000 allowance was worth a million dollars. If you bought $1000 worth of this stock at $.05 share, this would have been 20,000 shares. The week of October 11th, 2011, during the ENTIRE WEEK only 5,000 shares were traded. From this alone, you can see that it would have been impossible for you to even acquire 20,000 shares, for yourself at $.05 because there was nobody to sell them to you. We can't even look at the next week, because there WERE NO TRADES WHATSOEVER, so we have to skip all the way to November 11th, where indeed over 30,000 shares were traded. But this pushed the price all the way up to $2.00, again, there was no way you could have gotten 20,000 shares at $.05 So now, lets talk about liquidation of your shares. After several other highs and lows in the $20s and $30s, are you telling me that after holding this stock for 2 years you WOULDN'T have taken a $500,000 profit at $25.00 ? We are talking about someone that is investing with $1,000 here. I have my doubts that there was no time between October 2011 and January 2014 that you didn't think ""hm this extra $100,000 would be really useful right now.. sell!"" Lets say you actually held your $1,000 to $85.55 there were EXACTLY TWO DAYS where that was the top of the market, and in those two days the volume was ~24,000 shares one day and ~11,000 shares the next day. This is BARELY enough time for you to sell your shares, because you would have been the majority of the volume, most likely QUADRUPLING the sell side quotes. As soon as the market saw your sell order there would be a massive selloff of people trying to sell before you do, because they could barely get their shares filled (not enough buyers) let alone someone with five times the amount of shares that day. Yes, you could have made a lot of money. Doing that simplistic math does not tell you the whole story." "Companies normally do not give you X% of shares, but in effect give you a fixed ""N"" number of shares. The ""N"" may translate initially to X%, but this can go down. If say we began with 100 shares, A holding 50 shares and B holding 50 shares. As the startup grows, there is need for more money. Create 50 more shares and sell it at an arranged price to investor C. Now the percentage of each investor is 33.33%. The money that comes in will go to the company and not to A & B.   From here on, A & C together can decide to slowly cut out B by, for example: After any of the above the % of shares held by B would definitely go down." Large volume just means a lot of market participants believe they know where the stock price will be (after some amount of time).  The fact that the price is not moving just means that about 50% of those really confident traders think the stock will be moving up, and about 50% of those really confident traders think the stock will be moving down. "The answer to your question has to do with the an explanation of ""shares authorized, issued and outstanding."" Companies, in their Articles of Incorporation, specify a maximum number of shares they are authorized to issue. For example purposes let's assume Facebook is authorized to issue 100 shares. Let's pretend they have actually issued 75 shares, but only 50 are outstanding (aka Float, i.e. freely trading stock in the market) and stock options total 25 shares. So if someone owns 1 share, what percentage of Facebook do they own? You might think 1/100, or 1%; you might think 1/75, or 1.3%; or you might think 1/50, or 2%.  2% is the answer, but only on a NON-diluted basis. So today someone who owns 1 share owns 2% of Facebook. Tomorrow Facebook announces they just issued 15 shares to Whatsapp to buy the company.  Now there are 65 shares outstanding and 90 issued. Now someone who owns 1 share of Facebook own only 1/65, or 1.5% (down from 2%)! P.S. ""Valuation"" can be thought of as the price of the stock at the time of the purchase announcement." Let's take a step back. My fictional company 'A' is a solid, old, established company. It's in consumer staples, so people buy the products in good times and bad. It has a dividend of $1/yr. Only knowing this, you have to decide how much you would be willing to pay for one share.  You might decide that $20 is fair. Why? Because that's a 5% return on your money, 1/20 = 5%, and given the current rates, you're happy for a 5% dividend. But this company doesn't give out all its earnings as a dividend. It really earns $1.50, so the P/E you are willing to pay is 20/1.5 or 13.3.  Many companies offer no dividend, but of course they still might have earnings, and the P/E is one metric that used to judge whether one wishes to buy a stock.  A high P/E implies the buyers think the stock will have future growth, and they are wiling to pay more today to hold it. A low P/E might be a sign the company is solid, but not growing, if such a thing is possible. "What you need to do is go to yahoo finance and look at different stock's P/E ratios. You'll quickly see that the stocks can be sorted by this number. It would be an interesting exercise to get an idea of why P/E isn't a fixed number, how certain industries cluster around a certain number, but even this isn't precise. But, it will give you an idea as to why your question has no answer. ""Annual earnings are $1. What is the share price?"" ""Question has no answer""" I think you are mixing up the likelihood of making a profit with the amount of profit. The likelyhood of profit will be the same, because if you buy $100 worth of shares and the price moves up you will make a profit. If you instead bought $1000 worth of the same shares at the same price and the price moved up you would once again make a profit. In fact if you don't include commissions and other fees, and you buy and sell at the same prices, you percentage profit would be the same.  For example, if you bought at $10 and sold at $12, you percentage gain of 20% would be the same no matter how many shares you bought (not including commissions). So if you bought $100 worth your gain would have been 20% or $20 and if you bought $1000 worth your gain would have been 20% or $200. However, if you include commissions, say $10 in and $10 out, your net profit on $100 would have been $0 (0%) and your net profit on $1000 would have been $180 (18%). Note that your link shows the shares as of March 31, 2016 while http://uniselect.com/content/files/Press-release/Press-Release-Q1-2016-Final.pdf notes a 2-for-1 stock split so thus you have to double the shares to get the proper number is what you are missing. The stock split occurred in May and thus is after the deadline that you quoted. Specific stock advice isn't permitted on these boards. I'm discussing the process of a call spread with the Apple Jan 13 calls as an example.  In effect, you have $10 to 'bet.' Each bet you'd construct offers a different return (odds). For example, If you bought the $750 call at $37.25, you'd need to look to find what strike has a bid of $27 or higher. The $790 is bid $27.75. So this particular spread is a 4 to 1 bet the stock will close in January over $790, with a $760 break even.  You can pull the number from Yahoo to a spreadsheet to make your own chart of spread costs, but I'll give one more example.  You think it will go over $850, and that strike is now ask $18.85. The highest strike currently listed is $930, and it's bid $10.35. So this spread cost is $850, and a close over $930 returns $8000 or over 9 to 1.  Again, this is not advice, just an analysis of how spreads work. Note, any anomalies in the pricing above is the effect of a particular strike having no trades today, not every strike is active so 'last trade' can be days old.   Note: My answer adds to AlexR's response in that once you used the word bet and showed a desire to make a risky move, options are the answer. You acknowledged you understand the basic concept, but given the contract size of 100 shares, these suggestions are ways to bet under your $1000 limit and profit from the gain in the underlying stock you hope to see. "No. That return on equity number is a target that the regulators consider when approving price hikes. If PG&E tried to get a 20% RoE, the regulator would deny the request. Utilities are basically compelled to accept price regulation in return for a  monopoly on utility business in a geographic area. There are obviously no guarantees that a utility will make money, but these good utilities are good stable investments that generally speaking will not make you rich, but appreciate nicely over time. Due to deregulation, however, they are a more complex investment than they once were. Basically, the utility builds and maintains a bunch of physical infrastructure, buys fuel and turns it into electricity. So they have fixed costs, regulated pricing, market-driven costs for fuel, and market-driven demand for electricity.  Also consider that the marginal cost of adding capacity to the electric grid is incredibly high, so uneven demand growth or economic disruption in the utility service area can hurt the firms return on equity (and thus the stock price). Compare the stock performance of HE (the Hawaiian electric utlity) to ED (Consolidated Edison, the NYC utility) to SO (Southern Companies, the utility for much of the South). You can see that the severe impact of the recession on HE really damaged the stock -- location matters. Buying strategy is key as well -- during bad market conditions, money flows into these stocks (which are considered to be low-risk ""defensive"" investments) and inflates the price. You don't want to buy utilities at a peak... you need to dollar-cost average a position over a period of years and hold it. Focus on the high quality utilities or quality local utilities if you understand your local market. Look at Southern Co, Progress Energy, Duke Energy or American Electric Power as high-quality benchmarks to compare with other utilities." Don't know the name but it means you're long with conviction :P  Unlimited gains, maximum loss of 95$  + (8-6) = 97$.  Basically You are long @ 107  - -2 from 105 to 95.  You would have to be ULTRA bullish to initiate this strategy. Theoretically, when a company issues more shares, it does not affect the value of your shares.  The reason is that when a company issues and sells more shares, the proceeds from the sale of those shares goes back into the company. Using your example, you have 10 out of 100 shares of the company, for a 10% stake.  Let's say that the shares are valued at $1,000 each, meaning that the market value of the company is $100,000, and your stake is worth $10,000. Now the company issues 100 more shares at $1,000 each.  The company receives $100,000 from new investors, and now the company is worth $200,000.  Your stake is now only 5% of the company, but it is still worth $10,000. The authorized share capital is the amount of shares that a company has already planned on selling.  When you buy stock in a company, you can look up how many shares exist, so you know what your percent stake in the company is.  When a company wants to sell more shares, this is called an increase of authorized share capital.  In order to do this, the company generally needs the approval of a majority of the existing shareholders. I've read over these responses like a dozen times. It's really cool hearing from a business owner who has experienced things first-hand. Nobody in my family has ever been or known anything about business/stocks/Anything. I'm learning everything from the internet, friends, and now reddit. I'll certainly seek true legal advice but you have no idea how helpful you and every other person on this thread has been. Thank you! I'm all ears to anything else "This is not really the focus of your question, but it's worth noting that if you live in the United States (which your profile says you do), there are tax implications for you (but not for your children), depending on whether or not you charge your children (enough) interest.  If you charge less interest than the appropriate Applicable Federal Rate (for May 2016, at least 0.67%), you must pay taxes on the interest payments you would have received from the debtor if you had charged the AFR, provided that the loan is for $10,001 or more (p. 7). This is referred to as ""imputed"" income."