Skip to main content

Important ratios for stock analysis

Important ratios for stock analysis

  • PE ratio:- PE ratio also known as the price to earning ratio and very famous between the investors. Investors use this ratio with other ratios or data to find out undervalued stocks. Read more
    Important ratios for stock analysis
    Important ratios for stock analysis
  • Earning per share:- In simple meaning it means “distribution of company’s profit between each shares” it can be used as the indicator for determining company’s profitability. It is best to use PE ratio and Earning per share comparatively.
  • Return on Assets:- Is company using its assets effectively to generate income, yes or not? This ratio tells us the truth. This ratio gives us idea about management efficiency or capability to run company profitably. It compares company’s earnings as compare to its assets
  • Dividend payout ratio:- It means “amount of dividends paid to stockholders relative to the amount of total net income of a company” Dividend payout ratio = Dividends / Net Income.
  • Retention Ratio:- What company will do with its earnings, either it distribute to its share holders or retain it within itself. Part of earning which company kept with itself known as the retained earnings, it can be used in various works like payment of debt or expansion of business and assets buying etc. Retention ratio = Retained Earnings / Net Income.
  • EV/EBITDA:- Just like the PEratio (price to earning), the EV/EBITDA is very famous for the valuation of the company. EV stands for enterprise value and EBITDA stand for Earnings before interest, tax, depreciation and amortization (EBITDA). And it compares company on very different stages on the basis of the company’s earning. If it is rightly calculated then it reveals the secret that what is the current position of the company? Is company’s share is undervalued or overvalued? Its one of the important ratios for stock analysis. Read more.
  • Price to book value ratio:- what is company’s market value after paying all its debts? In short, this is known as the book value of the company. In other words book value is “market value of the company after payment of all debts”. And when we divide book value with total number of share then we get book value per share. Price to book value ratio tells us that “how much any individual is agreeing to pay for any return?” For example, a stock which price to book value is Rs 4 that mean you are agreeing to pay Rs 4 for every Rs 1.

Comments

Popular posts from this blog

PE ratio and Its analysis

Introduction:-  PE ratio also known as Price to Earning ratio and is the most popular ratio among the investors. They use this to identify undervalued or overvalued stocks. By using it investors enhance the area of margin of safety and secure their investment. How to calculate PE ratio? PE ratio = market value per share / EPS(earning per share) Examples of calculationAssume:- Market value per share = 40 EPS (earning per share) = 12 PE ratio = 40/12 = 3.5 Market value per share = 40 Earning per share = 5 PE ratio = 40/5 = 8 Best beginners book on share market

How to use it? Or PE ratio using tips:- Lower PE ratio is better than higher PE ratio for selection of stock because low PE mean high earning per share and high PE mean low earning per share. And we need high earning per share.Stock/share’s PE ratio compare with other same industry’s PE ratio. If both companies market cap nearly same then better to compare.Compare Company’s PE ratio with nifty and sensex PE ratio. First:- take the average o…

Kinds of Shares

Kinds of SharesMost of the investors didn’t concern in which type of share they were investing and because of that sometime they ends in wrong place. It is best for every investor to know about all type of shares because different shares are subject to different risks. Every investor can tolerate different level of risk and by knowing that they can chose according to their risk potential.
The Share-capital of a company limited by shares, formed after the commencement of the companies Act, 1956 or issued thereafter consists of two kinds of shares: Preference shares:- Such shares enjoy preferential rights like payment of dividend at a fixed rate during the life of the company, and  the return of capital on winding up of the company. Normally preference share holders do not enjoy voting rights like equity (common share) holders but they have voting right in distinguish circumstances. Read MoreEquity Shares (also known as ordinary shares):- It’s a very common form of shares and first choice…