Stock Market for Beginners: Must know Financial Ratios
Before Investing in a Stock | CA Aleena Rais
Groww
Aleena Rais will talk about the 6 ratios that need attention while investing in a stock. Aleena is
among the top ten ca tutors in the country. Earnings per share EPS depicts the earning of a
company on a share. It is important to look into the quality of the EPS ratio to be steady. A
company having fluctuations in EPS is not a viable investment option. The next ratio is the P/E
ratio, which is called the priceearning ratio. This informs whether the share is expensive or
cheap. If the ratio is high, it speaks of great investor sentiments and the company's past overall
performance. The high the P/E ratio, the higher is the buyer's trust. Even though the share price
is expensive, people still wish to buy it. The P/E ratio is also understood in comparison to the
company's industry average. Debt/Equity Ratio talks about outsiders and insiders' money. Debt
is the long term borrowing of the company. While equity is the shareholder's money invested in
the business. Interest and dividend are payable on debt and equity.
Debt is quite cheap as compared to equity. This means that the company is not able to take
benefit from increasing profits and financial leverage. Roe is the total profit of a company
divided by the company's total equity. The next ratio is return on equity. It shows the profit
earned and delivered to the company to its shareholders. Price to book value ratio informs
about the company's market value divided by the book value per share. P/B ratio tells that if the
company is sold today, liabilities will be paid first out of total assets. When the roe is falling, it is
incurring losses or low profits. The current ratio is a short and simple ratio which tells about a
company's short term liquidity. P/B ratio tells that if the company is sold today, then what will be
the shareholders ' amount receivable. Current ratio notifies whether the company has adequate
cash in its pocket or not.
Before Investing in a Stock | CA Aleena Rais
Groww
Aleena Rais will talk about the 6 ratios that need attention while investing in a stock. Aleena is
among the top ten ca tutors in the country. Earnings per share EPS depicts the earning of a
company on a share. It is important to look into the quality of the EPS ratio to be steady. A
company having fluctuations in EPS is not a viable investment option. The next ratio is the P/E
ratio, which is called the priceearning ratio. This informs whether the share is expensive or
cheap. If the ratio is high, it speaks of great investor sentiments and the company's past overall
performance. The high the P/E ratio, the higher is the buyer's trust. Even though the share price
is expensive, people still wish to buy it. The P/E ratio is also understood in comparison to the
company's industry average. Debt/Equity Ratio talks about outsiders and insiders' money. Debt
is the long term borrowing of the company. While equity is the shareholder's money invested in
the business. Interest and dividend are payable on debt and equity.
Debt is quite cheap as compared to equity. This means that the company is not able to take
benefit from increasing profits and financial leverage. Roe is the total profit of a company
divided by the company's total equity. The next ratio is return on equity. It shows the profit
earned and delivered to the company to its shareholders. Price to book value ratio informs
about the company's market value divided by the book value per share. P/B ratio tells that if the
company is sold today, liabilities will be paid first out of total assets. When the roe is falling, it is
incurring losses or low profits. The current ratio is a short and simple ratio which tells about a
company's short term liquidity. P/B ratio tells that if the company is sold today, then what will be
the shareholders ' amount receivable. Current ratio notifies whether the company has adequate
cash in its pocket or not.
