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Tickers in this Article: GHL, WBK, SHG, VRTS, CACC, PRE, RE
It's been a bad day for the market after the morning's trading. The Nasdaq is down 0.8%; the S&P 500 has decreased 0.5%; and the Dow has declined 0.7%. The financial sector is the category of stocks containing firms that provide financial services to commercial and retail customers. This sector includes banks, investment funds, insurance companies and real estate. Financial services perform best in low interest rate environments. A large portion of this sector generates revenue from mortgages and loans, which gain value as interest rates drop. Furthermore, when the business cycle is in an upswing, the financial sector benefits from additional investments. Improved economic conditions usually lead to more capital projects and increased personal investing. New projects require financing, which usually leads to a larger number of loans.

The Financial sector (XLF) is currently ahead of the overall market, down only 0.2%, and its biggest movers are currently:
CompanyMarket CapPercentage Change
Greenhill & Co (NYSE:GHL)$1.26 billion+3.9%
Westpac Banking Corporation (NYSE:WBK)$78.07 billion-3.8%
Shinhan Financial Group Co., Ltd (NYSE:SHG)$14.9 billion-1.8%
Virtus Investment Partners (Nasdaq:VRTS)$670.7 million+1.5%
Credit (Nasdaq:CACC)$2.42 billion+1.5%
PartnerRe (NYSE:PRE)$4.56 billion+1.2%
Everest Re (NYSE:RE)$5.37 billion+1.2%
Broker Summary: E-Trade Financial

Greenhill & Co (NYSE:GHL) has risen 3.9% to hit a current price of $45.35 per share. So far today, the company's volume is 175,204 shares. In technical analysis, trading volume is used to determine the strength of a market indicator. Looking at a company's valuation ratios is a good way of getting a basic idea as to its value as an investment. A company's price/earnings ratio (P/E ratio) provides a measure of how expensive or cheap a stock is. Relative to the industry P/E ratio of 38.85, GHL's 31.2 is low. Companies with low P/E ratios may find it easier to surprise the market to the upside, even if their financial performance is not as strong as that of companies with high P/E ratios. From the investor's perspective, a stock with a lower ratio is relatively cheaper than a stock with a higher ratio. SEE: Can Investors Trust the P/E Ratio?

Westpac Banking Corporation (NYSE:WBK) is currently trading at a share price of $123.89, a 3.8% decline. With 49,241 shares changing hands so far today, the company's volume is 1.7 times its average over the past three months. Volume is an important indicator because it indicates how significant a price shift is. Valuation ratios include the price to earnings (P/E) ratio, the price to earnings growth (PEG) ratio, the price to sales (P/S) ratio, the price to book (P/B) ratio, and the dividend yield. The price/book value ratio provides a way of evaluating whether a stock is relatively cheap or expensive. WBK has a P/B ratio of 1.7 which shows that its share price is higher than its book value. This high share price relative to asset value is likely to indicate that the company has been earning a very high return on its assets. P/B value ratios are particularly useful to value investors, distressed or "vulture" investors, or any other investors purchasing beaten-down securities but are less useful to investors focused on growth stocks, purchasing IPOs, or investing in technology or other "asset-lite" companies. SEE: Using The Price-To-Book Ratio To Evaluate Companies

Falling 1.8%, Shinhan Financial Group Co., Ltd (NYSE:SHG) is currently at a share price of $61.70. The company is trading at a volume of 7,580 shares. This is on pace to fall short of yesterday's volume of 26,654 shares. Volume is an important indicator in technical analysis as it is used to measure the worth of a market move. If the markets have made a strong price move either up or down the perceived strength of that move depends on the volume for that period. The higher the volume during that price move the more significant the move. Investment valuation ratios can be very useful in estimating whether a stock price is too high, reasonable or a bargain investment opportunity. Dividend yield measures the income that a stock will generate for an investor. SHG's dividend yield is 2.1%. Simply comparing the level of dividends that two stocks pay does not give a true reflection of which security is more attractive, so investors calculate the dividend yield in order to standardize dividend payments. SEE: Investment Valuation Ratios: Dividend Yield

Virtus Investment Partners (Nasdaq:VRTS) has moved up 1.5% and is currently trading at $86.94 per share. The company's volume is currently 5,011 shares for the day, 0.3 times the average daily volume. If a stock is trading on low volume, then there is not much interest in the stock. On the other hand, if a stock is trading on high volume, then there is a lot of interest in the stock. Understanding investment valuation ratios allows an investor to assess the true value of an individual stock. The debt-equity (D/E) ratio is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. VRTS' debt-equity ratio of 10% is on the low end. This shows that the company's assets are financed primarily through equity. The D/E ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage.

Credit (Nasdaq:CACC) is up 1.5% to reach a current price of $99.95 per share. The company is currently trading a volume of 15,607 shares. Volume is also used as a secondary indicator to help confirm what the price movement is suggesting. It is important for an investor to estimate the value of any potential or existing investment; valuation ratios make this easier. The debt ratio measures the leverage of a company, and a company's leverage is a good way to assess risk. CACC has a debt ratio of 73%, which is on the high side. This means that the company's cash flow is significantly impacted by paying off principal and interest and that any negative change in performance or rise in interest rates could result in default. However, one thing to note with this ratio: it isn't a pure measure of a company's debt (or indebtedness), as it also includes operational liabilities, such as accounts payable and taxes payable.

Rising 1.2%, PartnerRe (NYSE:PRE) is currently trading at $74.30 per share. The company's volume for the day so far is 184,853 shares, consistent with its current three-month average. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. While investment valuation ratios are useful tools in estimating the attractiveness of an investment, remember that it is important to look at a company's historical performance and compare the company ratios with its competitors and industry overall. The price/sales ratio measures a company's stock market price by its revenues. PRE has a P/S ratio of 0.86, on the low end. Low P/S ratios are more attractive than high ratios because this indicates that an investor is paying less for each dollar of sales. A limitation of the P/S ratio is that the price component measures only stock market captialization, while sales are a function of the entire capital structure, potentially leading to wide differences between levered and unlevered companies.

After rising 1.2%, Everest Re (NYSE:RE) is currently trading at a share price of $104.87. The company's volume for the day so far is 93,318 shares. This is about the same trading activity as there was yesterday. The trading volume for a stock indicates the level of investor interest. Investors can make use of valuation ratios to estimate whether a stock is fairly valued. The capitalization ratio measures the debt component of the capital structure, or capitalization of a company (i.e., the sum of long-term debt liabilities and shareholder equity) to support operations and growth. RE's capitalization ratio is 7.1%, which is relatively low. Low leverage is a significant balance sheet strength, a sign of a less risky investment. This ratio is considered to be one of the more meaningful of the "debt" ratios - it delivers the key insight into the use of leverage by a company.

The Bottom Line No matter the economic climate, Wall Street will always have stocks that make major moves each week. Paying close attention to the previous ratios will help you identify key times to adjust your strategy. Tools like valuation ratios and profit margins, however, are only as useful as the context you put them in; remember to take historical data and competitor performance into account.

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