How to Pick Best Stock To Investments
With the market split between good but overvalued stock and poor but undervalued ones, here are five ratios you look up before you buy.
1. PRICE TO EARNINGS RATIO
The most commonly used ratio, It compares the price of a stock to the company's earning per share (EPS). The EPS can be either for the past for quarters ( historical or trailing PE) or for the coming four quarters (Forward PE).
HOW IT IS DERIVED
Stock Price
𝄖𝄖𝄖𝄖𝄖𝄖𝄖 = PE
EPS
2. PRICE TO BOOK VALUE RATIO
The ratio compares the price of a stock with its book value. The book value is the net value of the company's total assets minus its liabilities. In other words, It was shareholders will be left with if the company goes bankrupt.
HOW IT IS DERIVED
Stock Price
𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖 = PBV
Book Value Per Stock
3. PRICE TO SALES RATIO
The ratio compares the price of a stock to the revenue earned par stock. The for the past four quarters it used in the calculation.
HOW IT IS DERIVED
Stock Price
𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖 = PS
Revenue Per Stock
4. DEBT-TO-EQUITY RATIO
It measures a company's leverage by comparing its debt with its equity base, The ratio indicates the proportion of the company's assets that are being financed through debt.
HOW IT IS DERIVED
Total Long-Term Debt
𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖 = Debt-Equity Ratio
Shareholder Equity
5. ASSET TURNOVER RATIO
The ratio measures the sales generated for every rupee worth of an asset. it shows a firm's efficiency in using its asset to generated revenue.
HOW IT IS DERIVED
Revenue
𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖𝄖 = Asset Turnover Ratio
Total Assets
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