8 Financial Ratio that Every Stock Investor Should Know [PE, PB, ROE & More] HD

8 Financial Ratio that Every Stock Investor Should Know: http://www.tradebrains.in/financial-ratio-analysis-must-know/ Here are the 8 Financial Ratio that Every Stock Investor Should Know: 1 Earnings Per Share (EPS): It’s always better to invest in a company with higher EPS as it means that the company is generating greater profits. Before investing in a company, you should check the it’s EPS for the last 5 years. If the EPS is growing for these years, it’s a good sign. On the other hand, if EPS is regularly falling or is erratic, then you should start searching another company. 2 Price to Earnings Ratio (P/E): The Price to Earnings ratio is one of the most widely used financial ratio analysis among the investors for a very long time. A high P/E ratio generally shows that the investor is paying more for the share. As a thumb rule, a low P/E ratio is preferred while buying a stock, but the definition of ‘low’ varies from industries to industries. So, different sectors (Ex Automobile, Banks etc) have different average P/E ratios for the companies in their sector, and comparing the P/E ratio of company of one sector with P/E ratio of company of another sector will be insignificant. Therefore companies with lower PE than its peers in same industry is preferred. 3 Price to Book Ratio (P/B): Price to Book Ratio (P/B) is calculated by dividing the current price of the stock by the latest quarter’s book value per share. P/B ratio is an indication of how much shareholders are paying for the net assets of a company. Generally, a lower P/B ratio could mean that the stock is undervalued, but again the definition of lower varies from sector to sector. 4 Debt to Equity Ratio: The debt-to-equity ratio measures the relationship between the amount of capital that has been borrowed (i.e. debt) and the amount of capital contributed by shareholders (i.e. equity). Typically, as a firm’s debt-to-equity ratio increases, it becomes more risky. A lower debt-to-equity number means that a company is using less leverage and has a stronger equity position. As a thumb of rule, companies with debt-to-equity ratio more than 1 are risky and should be considered carefully before investing. 5 Return on Equity (ROE): Return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. ROE measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. In other words, ROE tells you how good a company is at rewarding its shareholders for their investment. As a thumb rule, always invest in a company with ROE greater than 20% for at least last 3 years. A yearly increase in ROE is also a good sign. If you want to read the complete post, you can read it here: http://www.tradebrains.in/financial-ratio-analysis-must-know/ Summary: 1 Earnings Per Share (EPS) – Increasing for last 5 years 2 Price to Earnings Ratio (P/E) – Low compared to Industry 3 Price to Book Ratio (