Last week’s question and answer

My history can be traced back to 1881’s Eastman Dry Plate Co. My founder aimed to simplify photography with mass production at a low cost. In 1883 he introduced film in rolls, followed by an 1888 camera preloaded with enough film for 100 exposures. It cost $25 and developing cost an additional $10. By 1900, my popular Brownie sold for a mere dollar. Today I’m a photography giant, with annual sales of more than $13 billion generated in more than 150 nations. Among other things, I supply the medical and dental industries with traditional and digital imaging-information products and services. Who am I?

(Answer: Eastman Kodak)

Price confusion in stock market

How can a lower-priced stock be deemed more expensive than a higher-priced stock? – C.U., Lakeland, Fla.

A stock’s price means very little on its own. To draw meaningful conclusions, you need to compare it to something else, such as sales, earnings, cash flow, etc.

Imagine Fred Co. (ticker: TAPTAP) and Ginger Inc. (ticker: TWIRL), each trading for $20 per share. If Fred’s earnings per share (EPS) for the past 12 months is $1 and Ginger’s is $2, then Fred’s price-to-earnings ratio (or P/E, representing price divided by EPS) is 20, while Ginger’s is 10. You’d have to pay $20 for each dollar of Fred’s earnings, vs. just $10 for Ginger. Aha – already, one company looks cheaper (Ginger).

Consider market capitalization, too, which is the total price tag the market is placing on a company. To get it, multiply the current share price by the number of shares outstanding. If Fred sports 50 million shares and Ginger has 3 billion, then Fred’s market cap is $1 billion and Ginger’s is $60 billion. Suddenly it’s clear that Ginger is being valued much higher than Fred.

Money-saving tips

Save some big bucks via these clever tips offered by Fools on our online discussion boards (http://boards.fool.com):

¢ Think about every dollar you spend. Make yourself wait a month before you make most purchases. A month later, you might not want some things quite as much.

¢ Develop hobbies and interests that don’t cost much, such as hiking or a book club. Consider developing income-producing hobbies, such as woodworking or free-lance writing.

¢ Use your local library more, instead of bookstores. Start a book exchange at work, trading books with colleagues.

¢ Eat before going to the movies, so that you’re not tempted to pay $37 for a tub of popcorn.

¢ Rent movies instead of seeing them at expensive first-run theaters.

¢ Reduce, reuse and recycle. You can get a few dollars back when you recycle some things. Reducing and reusing also can save some greenbacks.

¢ Consider trimming your cable or satellite TV subscriptions, perhaps dropping one or more premium channels.

¢ Try bartering. You may be able to negotiate some free haircuts for preparing your hairdresser’s will. See what you and your friends can do for each other.

¢ Toss out those advertising supplements that pad your Sunday paper unless you really need to buy something. Otherwise you may end up buying things you don’t really need.

¢ Don’t buy magazines regularly at newsstands. Subscriptions are much cheaper. Better still, read magazines at libraries or online.

¢ E-mail friends and relatives sometimes instead of phoning.

¢ Lower your long-distance phone rates. You may be able to get your carrier to meet or beat the best deals offered by competitors.

¢ Call the folks at your credit card company and negotiate a lower interest rate. If they balk, tell them you’ll take your business elsewhere. Get credit tips at www.fool.com/ccc/ccc.htm.

¢ Establish a regular game night with family or friends, where you play board and card games with each other. Learn more at www.funagain.com.

¢ When shampooing, lather up, rinse, and then don’t repeat.

Coke cash cow

Coca-Cola’s (NYSE: KO) recent first-quarter results, while awash in cash, saw little growth.

Worldwide unit case volume growth was ahead 3 percent. Why own such a slow-moving behemoth, where future growth will be in measured steps instead of massive strides? Start by looking at the balance sheet.

Last quarter the company had $410 million more debt than cash. Now there is $23 million more cash than debt. For comparison, competitors PepsiCo (NYSE: PEP) and Cadbury Schweppes (NYSE: CSG) have more debt than cash. That gilded edge on Coke’s ledger is the stuff that makes for sound sleep. (Of course, debt is not always evil. When managed sensibly, it can help a company grow.)

For 43 consecutive years, Coke has increased its dividend. The latest 12 percent increase results in a dividend yield around 2.6 percent.

Also, remember that the company is truly international. The U.S. generates just 30 percent of total sales, with operating margins of 19.7 percent. Asia rings up 21 percent of sales and has 36.6 percent operating margins. So, while the economy may be sluggish at home, there are other regions contributing to profits.

Given Coke’s strengths and shares that have fallen 22 percent from where they were last year, the stock seems poised to beat the overall total market return in the coming years.

Burned twice

During the 1950s, I stupidly invested several thousand dollars in a uranium mining company and ended up losing all my money. Years later, I invested in a firm that made rotary engines. Along came the gasoline crisis, and I learned that rotary engines used more gas than other engines. Again I lost my money. Since then, I stayed out of the market, but look at all I missed. – Ed K., Lantana, Fla.

The Fool Responds: Staying out of the stock market does often mean you lose out on a lot of gains. But most successful investors don’t find those gains in obscure companies whose businesses they don’t understand very well. Instead, they seek out firms and industries with which they’re familiar and whose progress they’ll enjoy following. Never invest blindly on hot stock tips, hoping for the best. Many of the best long-term investments have been companies most people have heard of: Wal-Mart, Microsoft, Coca-Cola and so on.