Important Ratios For Stock Picking

---

There are six kinds of financial ratios that are essential for understanding the value that underlies any company’s stock. This page gives you a brief introduction to each of them.

Price Earnings Ratio

A valuation ratio of a company’s current share price compared to its per-share earnings.It is calculated by dividing the current closing price of the stock by the latest quarter’s earnings per share. Generally, a lower P/E is considered more favorable.

Price Book Ratio

A ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share. Generally, a lower P/B is considered more favorable.

Debt Equity Ratio

A measure of a company’s financial leverage calculated by dividing long-term debt by stockholder equity. It indicates what proportion of equity and debt the company is using to finance its assets. Generally, a lower D/E is considered more favorable.

Earnings Per Share Ratio

The portion of a company’s profit allocated to each outstanding share of common stock. It serves as an indicator of a company’s profitability. Generally, a higher EPS is considered more favorable.

Dividend Yield Ratio

A financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Generally, a higher yield is considered more favorable.

Stock Beta

A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.