Just like we all care about our personal health, managers and investors care about the health of their company. How can they perform a “check-up” on their business in order to determine its progress and financial health? Instead of weight or blood pressure, analysts use financial ratios. We’ll talk about three categories of ratios: profitability, liquidity, and solvency.
This article describes price-to-sales ratios (Price/Sales or P/S), which take the company’s market capitalization (the number of shares multiplied by the share price) and divide it by the company’s total sales over the past 12 months. The lower the ratio, the more attractive the investment.
Price/Earnings To Growth, is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company’s expected future growth. It can be useful when looking at the future earning growth. To find out more details about the PEG, and how it’s calculated, click on this article.
Asset Turnover Ratio is the amount of sales generated for every dollar’s worth of assets.
This article looks at Sharpe Ratios, which are used to calculate the extra return you make compared to the extra risk you take on.
Current Ratio is the ratio of current assets divided by current liabilities. It provides A liquidity ratio that measures a company’s ability to pay short-term obligations. Also known as “liquidity ratio”, “cash asset ratio” and “cash ratio”. Read this article for the formula and an example of a current ratio in action.
Click on this post to learn about the Asset/Equity Ratio, which is the ratio of total assets divided by stockholders’ equity.
This post defines what a Quick ratio is, and how it is calculated!
Return on Equity (ROE) is used to measure how much profit a company is able to generate from the money invested by shareholders. Click on this post to see how it is calculated, what kind of ROE you should look for, and more!
PE Ratio (Price-to-Earnings) is a valuation ratio that compares the price per share of a company’s stock to its earnings per share. It basically shows how much investors are willing to pay for a share given the earnings currently generated. This article provide the details of how to use and interpret it, as well as gives an example of how it is calculated.