Thursday, June 20, 1996
A Foolish Algebra Lesson
by MF DowMan

What do you mean I have to calculate it myself? HOW????

Sound familiar? If you're rapidly becoming a Fool and were one of those students who hoped you could pass algebra by shoving the textbook under your pillow, hoping to absorb the stuff through osmosis, it just might sound familiar.

One of the tests Fools put to their growth stock candidates is checking the average daily dollar volume. But if you've picked up Investor's Business Daily looking for that number, you know it's not there. So you have to use a little algebra (and you never believed it was used in the real world) to back your way into that number.

What IBD does give you, however, is enough to get you there. The three numbers you'll need to calculate this statistic are today's price, today's volume, and today's volume difference (how much today's volume varies from the average.)

Let's put in an equation with a few variables (ack, that's right, variables). Let's call the average volume "V." We'll call the volume difference "D." And Today's volume is "T." So, in equation form:

(V * D) + V = T

Let's take an example. Bird Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BEAK)") else Response.Write("(NASDAQ:BEAK)") end if %> had volume today (T) of 45,000 shares. And IBD tells us that that volume is 25% above the average (D). If we plug what we know into our equation, we get:

(V * 0.25) + V = 45,000

To simplify:

1.25V = 45,000

or,

V = 36,000 shares

So, we now know the average daily volume for BEAK is 36,000 shares. To find the average daily DOLLAR volume (which is what the Fools check), simply multiply V times today's price. With BEAK trading at $30 a share, the average daily dollar volume is $1.08 million.

It's hard to imagine, I know, but that algebra junk really can be useful. Fool on!

Transmitted: 6/20/96