Investing in stocks requires a careful analysis of a company's financial health.In this story, we'll discuss the important financial ratios that can help you make informed investment decisions.
Commonly used financial ratio that compares a company's stock price to its earnings per share (EPS). A lower P/E ratio may indicate an undervalued stock, while a higher P/E ratio may indicate an overvalued stock.
P/E Ratio
The P/B ratio compares a company's stock price to its book value per share. A low P/B ratio may indicate an undervalued stock, while a high P/B ratio may indicate an overvalued stock.
P/B Ratio
The dividend yield is the annual dividend payment per share divided by the stock price. A higher dividend yield may indicate a financially stable company that pays a good dividend to its shareholders.
Dividend Yield
The debt-to-equity ratio compares a company's debt to its equity. A lower debt-to-equity ratio may indicate a financially stable company with less debt and more equity.
Debt-to-Equity Ratio
ROCE measures a company's profitability by comparing its earnings before interest and taxes (EBIT) to its capital employed. Capital employed includes both equity and debt. A higher ROCE may indicate a company is generating good returns on its capital investments.
ROCE
The gross profit margin measures the percentage of revenue that remains after accounting for the cost of goods sold. A higher gross profit margin may indicate a company is efficiently managing its production costs and generating higher profits.
Gross Profit Margin
The current ratio compares a company's current assets to its current liabilities. A higher current ratio may indicate a financially stable company with enough current assets to cover its current liabilities.
Current Ratio
ROA measures a company's profitability by comparing its net income to its assets. A higher ROA may indicate a company is efficiently using its assets to generate profits.