Stock Analysis - Fundamentals

 

PB <= 1 A company's price-to-book ratio is the company's current stock price per share divided by its book value per share (BVPS).

Dividend Yield (More the better) The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. PEG Ratio : Lower the better The price/earnings to growth ratio (PEG ratio) is a stock's price-to-earnings (P/E) ratio divided by the growth rate of its earnings Current Ratio: More the better The current ratio, also known as the working capital ratio, measures the capability of a business to meet its short-term obligations that are due within a year. Current Assets / Current Liabilities Quick Ratio: More the better The quick ratio measures the dollar amount of liquid assets available against the dollar amount of current liabilities of a company. The quick ratio provides a more stringent measure of liquidity than the current ratio because it excludes inventory, which may not be as easily convertible to cash in the short term. (Current Assets - Inventory) / Current Liabilities Interest Coverage Ratio: More than 2.5 The Interest Coverage Ratio (ICR) is a financial ratio that is used to determine how well a company can pay the interest on its outstanding debts. Graham Number: Price of stock to be lower than this number The Graham number is the upper bound of the price range that a defensive investor should pay for the stock. According to the theory, any stock price below the Graham number is considered undervalued and thus worth investing in. Debt To Equity (Total Debt) / (Shareholders Equity) A Debt-to-Equity ratio below 1 suggests that equity financing is a larger proportion of the capital structure. A Debt-to-Equity ratio above 1 indicates that debt financing is a larger proportion of the capital structure. Balanced Sheet Equation. Assets=Liabilities+Equity ROA. (NET INCOME) / (NET STAKEHOLDERS EQUITY) ROE (NET INCOME) / (Total Assets) Typically ROE is greater than ROA The key factor influencing the relationship between ROE and ROA is the company's use of financial leverage (debt). Financial leverage amplifies returns on equity but does not affect returns on assets in the same way. If a company has debt in its capital structure, the interest expense associated with the debt can boost returns on equity. This is because the company can generate profit with both equity and borrowed funds. As a result, in cases where a company has financial leverage, ROE may be higher than ROA. However, if a company has little or no debt, the relationship between ROE and ROA may be closer, and ROE might still be higher than ROA, but the difference may not be as pronounced.