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Tickers in this Article: MMR, EXXI, TSO, FGP, WLL, SM, CWEI
After the morning's trading, the Nasdaq is down 0.5%, the S&P 500 has declined 0.2% and the Dow has risen 0.1%.

The Oil and Gas Operations sector (DIG) is trading up 1.2% overall, and these are the biggest movers in the sector so far:
CompanyMarket CapPercentage Change
Mcmoran Exploration Co (NYSE:MMR)$2.14 billion-7.5%
Energy XXI (Bermuda) Limited (Nasdaq:EXXI)$2.51 billion-4.2%
Tesoro (NYSE:TSO)$3.56 billion+3.1%
Ferrellgas Partners, L.P. (NYSE:FGP)$1.52 billion+2.9%
Whiting Petroleum Corporation (NYSE:WLL)$4.78 billion-2.7%
SM Energy Co. (NYSE:SM)$3.11 billion-2.5%
Clayton Williams Energy, Inc. (Nasdaq:CWEI)$588.2 million-2.4%
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Falling 7.5%, Mcmoran (NYSE:MMR) is currently at a share price of $12.27. So far today, 2.1 million shares of the company's stock have changed hands. Yesterday's volume was only two million shares. As a stock moves up or down, it is important to pay attention to the trading volume. This indicates the level of interest: the higher the volume, the more the interest. Profit-margin ratios help us to keep score, as measured over time, of management's ability to generate profits and manage costs and expenses. There are three key profit-margin ratios: gross profit margin, operating profit margin and net profit margin. MMR's gross profit margin is 49.3%. Operating profit measures how much cash the business throws off, and some consider it a more reliable measure of profitability since it is harder to manipulate with accounting tricks than net earnings. Operating profit margin for MMR is 7.6%. Net profit margin is a good tool for fundamental analysis and long-term investing but is less useful for technical analysts and short-term traders. The company's net profit margin is 1%.

Investors can use valuation ratios as tools to estimate what kind of deal a particular investment is. The price/sales ratio is used for spotting recovery situations or for double-checking that a company's growth has not become overvalued. The P/S ratio for MMR is 3.27, which is relatively high. In young companies, a high P/S ratio is a sign of sales growth that is expected to turn into earnings and cash flow. All things being equal, a low P/S ratio is good news for investors, while a very high one can be a warning sign.

After a decline of 4.2%, Energy (Nasdaq:EXXI) has hit a share price of $30.45. At 619,203 shares, the company's volume so far today is 0.5 times its average over the past three months. If a stock price makes a big move up or down, volume lets us know the significance of that move. Calculating the profit margin is a great way to gain insight into aspects of how well a company generates and retains money. Instead of measuring how much managers earn from assets, equity or invested capital, profit-margin ratios measure how far a company stretches its total revenue or total sales. EXXI's gross profit margin of 89.8% is fairly high. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Operating margin for EXXI is 37.7% and net margin is 23.3%, both high relative to its gross margin.

Investors can make use of valuation ratios to estimate whether a stock is fairly valued. The debt ratio shows the proportion of assets that a company is financing through debt. EXXI's debt ratio is 58.3%. As with all financial ratios, a company's debt ratio should be compared with the industry average or similar companies.

Tesoro (NYSE:TSO) is at $26.19 per share after an increase of 3.1%. The company's volume for the day so far is 1.9 million shares. When a stock price moves up or down, watching the volume is a good way of identifying how significant that shift is. Profit-margin ratios can give investors deeper insight into management efficiency than earnings alone can provide. Gross profit margin, operating profit margin and net margin are commonly used margins. TSO has a low gross profit margin of 5.4%. Investors should track gross profit margin ratios over several years in order to see if earnings are consistent, growing or declining. Operating margin for TSO is 1.7% and net margin is 1.6%, both low relative to its gross margin.

When estimating the value of a particular investment, valuation ratios provide a good basis for assessing the value of an individual stock. To a large degree, the debt-equity (D/E) ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. The debt-equity ratio of 45% is relatively low. 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.

Ferrellgas Partners (NYSE:FGP) has increased to a share price of $19.74, a 2.9% rise. At 117,869 shares, the company's volume so far today is 0.7 times the average daily volume. Volume is used to evaluate how meaningful the price movement of a stock is. Margin ratios highlight companies that are worth further examination. FGP has a low gross profit margin of 13.9%. This may mean that the company is struggling to control production costs, or that a low amount of earnings is being generated from revenues. Compared with its gross profit margin, FGP's operating profit margin of 7.2% and net profit margin of -0.7% are low.

Understanding investment valuation ratios allows the investor to assess the true value of an individual stock. A company's capitalization (not to be confused with its market capitalization) is the term used to describe the makeup of a company's permanent or long-term capital, which consists of both long-term debt and shareholders' equity. The capitalization ratio for FGP is 95.7%, which is fairly high. If the company is a company is in a highly competitive business and hobbled by high debt, it will find its competitors taking advantage of its problems to grab more market share. 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.

Slipping 2.7%, Whiting (NYSE:WLL) is currently trading at $39.51 per share. So far today, the company's volume is 440,183 shares. Trading activity is down from yesterday when 1.7 million shares changed hands. Volume indicates the level of interest that investors have in a company at its current price. Profit-margin ratios measure how much money a company squeezes from its total revenue or total sales. Investors can look at a company's gross profit margin, operating profit margin and net margin to understand a company's profitability. WLL's gross profit margin is 71.6%. Value investors, investors in distressed securities, and junk bond investors will probably pay more attention to the operating margin ratio. WLL's operating profit margin is 27.9%. Net profit margins are those generated from all phases of a business, including taxes. Net profit margin for the company is 28.3%.

A company's investment value can be estimated using valuation ratios such as 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. There are generally two price/earnings ratios calculated: the first, called the trailing Price/Earnings ratio, is calculated using the previous years actual earnings; the second, called forward Price/Earnings ratio, is calculated using the next year's estimated earnings. The P/E ratio for WLL is 8.6, below the industry average of 10.14. A low P/E ratio may indicate that the market expects relatively slower earnings growth. A high or low P/E ratio is not good or bad in and of itself, but a company trading with a high P/E ratio must continue to post strong financial performance or its stock price is likely to fall. SEE: Investment Valuation Ratios: Price/Earnings Ratio

SM (NYSE:SM) is down 2.5% to reach $47.20 per share. The company's volume is currently 212,964 shares for the day, 0.2 times the average volume over the last three months. In technical analysis, trading volume is used to determine the strength of a market indicator. Margin analysis tells us how effectively management can wring profits from sales and how much room a company has to withstand a downturn, fend off competition and make mistakes. The gross profit margin for SM is 72.5%. SM's operating margin of 14.9% and net margin of 17.5% are high relative to its gross margin.

In making a decision about a potential or existing investment, valuation ratios are useful as a basis for seeing whether the stock price is too high, reasonable, or a bargain. The assumption with high price/earnings stocks (generally of the growth variety) is that investors are willing to buy at a high price because they believe that the stock has significant growth potential, and the price/earnings to growth (PEG) ratio helps investors determine the degree of reliability of that growth assumption. SM's PEG ratio is 0.72. Because of the adjustment for earnings growth rate, the PEG ratio is somewhat more useful than many formulas for comparing companies in different industries.

Clayton Williams Energy (Nasdaq:CWEI) has fallen 2.4% and is currently trading at $47.18 per share. So far today, the company's volume is 6,754 shares. 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. Margin analysis is a great way to understand the profitability of companies. CWEI has a gross profit margin of 67.1%. The operating margin ratio can also be useful for tracking an individual company's performance across time, where an increasing ratio is good and a declining ratio may provide cause for concern that a company's business model is weakening. Operating profit margin for CWEI is 24.6%. Comparing net profit margins for companies with similar business models or in similar industries can yield valuable information as to which business is actually performing better. Net margin is 25.8%.

Valuation ratios like 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 are useful in determining how attractive a potential or existing investment is. The price/book value ratio is one of the more common methods of determining whether a stock is fairly valued. CWEI's stock is trading for more than its book value with a P/B ratio of 1.63. It is important to take the company's debt into account when using the P/B ratio as debt can boost a company's liabilities to the point where they wipe out much of the book value of its hard assets, creating artificially high P/B values. P/B value comparisons should be made among companies in the same industry rather than across industries. SEE: Investment Valuation Ratios: Price/Book Value Ratio

The Bottom Line The nature of the market is such that stocks will have good days and bad days. It is important to weigh current activity against historical performance when making any investment decisions. 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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