Compare

Can you tell what is the size of this thing? When analyze a company, one of the methods is compare. That’s why there is benchmark selected to be a references. For example our market there is a composite index. This index is consisting of 100 largest companies in Kuala Lumpur Stock Exchange (KLSE). When look at the index, Kuala Lumpur Composite Index (KLCI) is at around 1250 points. What does it means? What is the purpose of the index such as Dow Jones Industrial Average close at 12582 points, Hong Kong Hang Seng Index is at 24187 points, and Singapore Straits Time Index at 3064 points?

Refer to the formula for the KLCI, it compare the market 100 biggest companies capitalization and the 100 biggest companies capitalization now. If the KLCI go back to 100 points, it means Malaysia economy is same with the year on 1977.

Besides, there is average Price Earning Ratio (PE) of the index. When you buy a stock, you can compare the company PE with the index, or with the particular industry average PE, or else which relevant.

If don’t compare, it is hard to judge it. Look at the picture above, can you tell me how big is the machine excavator?