Studying the fundamentals of the company helps in identifying the correct stocks for trading or investing.
Simplifying all the 10 important financial ratios that will help you in doing Fundamental Analysis of any stocks.
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Simplifying all the 10 important financial ratios that will help you in doing Fundamental Analysis of any stocks.
BOOKMARK/SAVE this thread π§΅:
1/ Price to Earnings Ratio:
The price-to-earnings ratio is the ratio for valuing a company that measures its current share price relative to its earnings per share (EPS).
A high P/E ratio could mean that a stock is overvalued, or that investors are expecting high growth.
The price-to-earnings ratio is the ratio for valuing a company that measures its current share price relative to its earnings per share (EPS).
A high P/E ratio could mean that a stock is overvalued, or that investors are expecting high growth.
P/E ratio can't be used for companies in net losses since P/E will be negative for them.
Two kinds of P/E ratios:
β‘οΈForward P/E: Based on Future Earnings
β‘οΈTrailing P/E: Based on Historical or TTM Earnings
Two kinds of P/E ratios:
β‘οΈForward P/E: Based on Future Earnings
β‘οΈTrailing P/E: Based on Historical or TTM Earnings
2/ Price to Book Value:
The price-to-book (P/B) ratio measures the market's valuation of a company relative to its book value.
In simple terms, book value is company asset value net of liability.
Book value of a company can be negative just like Earnings.
The price-to-book (P/B) ratio measures the market's valuation of a company relative to its book value.
In simple terms, book value is company asset value net of liability.
Book value of a company can be negative just like Earnings.
3/ Price to Sales Ratio:
The Price/Sales is calculated by taking a company's market capitalization and divide it by the company's total sales or revenue over the past 12 months.
Sales can never be negative for any company, but Sales can be manipulated to a certain extent.
The Price/Sales is calculated by taking a company's market capitalization and divide it by the company's total sales or revenue over the past 12 months.
Sales can never be negative for any company, but Sales can be manipulated to a certain extent.
4/ Price to CF Ratio:
The P/CF ratio is a multiple that compares a company's market value to its operating cash flow or its stock price per share to operating cash flow per share.
P/CF is preferred over P/E since Cash Flow can't be easily manipulated, just like earnings.
The P/CF ratio is a multiple that compares a company's market value to its operating cash flow or its stock price per share to operating cash flow per share.
P/CF is preferred over P/E since Cash Flow can't be easily manipulated, just like earnings.
5/ Return on Equity:
Return on equity (ROE) is the measure of a company's net income divided by its shareholders' equity. It is a gauge of a corporation's profitability and how efficiently it generates those profits.
Return on equity (ROE) is the measure of a company's net income divided by its shareholders' equity. It is a gauge of a corporation's profitability and how efficiently it generates those profits.
6/ Return on Capital Employed:
Return on capital employed is a financial ratio that measures a companyβs profitability in terms of all of its capital. ROCE is similar to return on invested capital.
Return on capital employed is a financial ratio that measures a companyβs profitability in terms of all of its capital. ROCE is similar to return on invested capital.
7/ Debt to Equity Ratio:
Debt-to-equity (D/E) ratio compares a companyβs total liabilities with its shareholder equity.
D/E ratios vary by industry and are best used to compare direct competitors. Capital Intensive sectors like Infra, Power, Sugar can have high D/E ratio.
Debt-to-equity (D/E) ratio compares a companyβs total liabilities with its shareholder equity.
D/E ratios vary by industry and are best used to compare direct competitors. Capital Intensive sectors like Infra, Power, Sugar can have high D/E ratio.
8/ Interest Coverage Ratio:
The interest coverage ratio is used to measure how well a firm can pay the interest due on outstanding debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense during a given period.
The interest coverage ratio is used to measure how well a firm can pay the interest due on outstanding debt. It is calculated by dividing a company's earnings before interest and taxes (EBIT) by its interest expense during a given period.
9/ Enterprise Value:
Enterprise value (EV) measures a company's total value and includes in its calculation the market capitalization of a company but also short-term and long-term debt and any cash on the company's balance sheet.
EV=Market Cap +Total Debt β Cash
Enterprise value (EV) measures a company's total value and includes in its calculation the market capitalization of a company but also short-term and long-term debt and any cash on the company's balance sheet.
EV=Market Cap +Total Debt β Cash
10/ EV to EBITDA Ratio:
The enterprise multiple takes into account a company's debt and cash levels in addition to its stock price and relates that value to the firm's cash profitability.
Higher multiples are expected in high-growth and lower multiples in slow growth.
The enterprise multiple takes into account a company's debt and cash levels in addition to its stock price and relates that value to the firm's cash profitability.
Higher multiples are expected in high-growth and lower multiples in slow growth.
That's all about important financial ratios for analyzing any company's fundamentals.
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