Financial ratios are ratios that give you an idea of how under- or over-valued a stock may be in terms of its earnings and cash flow, as well as how sound its balance sheet is and so on. Using financial ratios can’t tell you everything about a stock, but they well help you determine which stocks are worth taking a closer look at. A few examples of financial ratios are: Price-earnings ratios (or P/E ratio): The p/e is the ratio of a stock’s market price to its per-share earnings. As a general rule, the lower the p/e, the better, and generally a p/e of less than 10 represents value. Price-to-book-value ratios: The book value per share of a company is the value that the company’s books place on its assets, less all liabilities, divided by the number of shares outstanding. Book value per share gives you a rough idea of the stock’s asset value. Price-cash flow ratios: Simply put, it’s earnings without taking into account non-cash charges such as depreciation, depletion and the write-off of intangible assets over time. It’s actually a better measure of a company’s performance than earnings. Debt-to-equity: When a company loses money, it still has to pay the interest and eventually repay the debt. Generally it does so by dipping into shareholders’ equity. A high ratio of debt to equity increases the risk that the company (that is, the shareholders’ equity in the company) won’t survive a business slump. Once we’ve found a company that looks attractive using the financial ratios detailed above, we look to see if it has a solid business in an attractive industry, with a history of rising sales and earnings, if not dividends. Even a stock whose financial ratios look good can stagnate if the company or its industry is in a difficult period. But if it’s a high-quality company, it’s likely to hold up better than other alternatives. Better still, it may be first to move up when conditions improve. We often receive questions about planning and enjoying a successful retirement. Our answers to those questions, based on decades of investment experience, are all located in this FREE report: 12 Steps to the Retirement You Want.
If you want to determine stock valuation on your own, try using price-to-sales, price-to-earnings, and price-to-book-value ratios
No matter which financial ratio you consult, remember it only gives you a partial view of a company’s strengths and weaknesses. So use more than just one when determining… Read More
When comparing growth vs. value investing, it’s important to look at the pros and cons of each strategy
Value stocks are typically stocks trading lower than their financial fundamentals suggest. They are perceived as undervalued, and have the potential to rise.
Growth stocks are companies that are… Read More
My wife and I recently visited Oslo, Norway, to attend a wedding. After that, we stopped in Stockholm and Copenhagen. The wedding was of course the main event, but one thing that really sticks in my mind was our visit to the Vasa Museum in… Read More
Don’t use these retirement savings ideas if you want to retire comfortably
To succeed as an investor, you need to get used to the idea that short-term declines come along unpredictably. These declines are common enough that some investors think about them way too much. Far… Read More
These value stock definitions will provide you with key information you need to find the best stocks for your portfolio
If you stick with the highest-quality value stock picks, we think you will achieve above-average long-term portfolio gains. The value stock definitions below provide the insight… Read More
Bargain stocks aren’t just penny stocks; they can be high-quality value stocks, too
Hunting for bargain stocks doesn’t always mean penny stocks. Many investors seek out “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to their sales, earnings or assets).
One of… Read More
Here’s a guide to building a strong portfolio through smart financial investing
Financial investing involves buying assets—like stocks, bonds, and ETFs—with the expectation of income and/or capital gains.
Here are some tips aimed at helping investors manage their financial investments while cutting the risk of their portfolio… Read More
The top value stocks trade lower than their financial fundamentals suggest
Finding top value stocks is among the most profitable strategies of successful investing.
High-quality “value stocks” are reasonably-priced stocks, if not cheap, in relation to its sales, earnings or assets. Investors hold onto them because they… Read More
The top value stocks are inexpensive and likely to rise over time, but you need to choose carefully.
Top value stocks are reasonably priced, if not cheap, in relation to its sales, earnings or assets. They are perceived by investors as undervalued, and… Read More
Investors who want to build profitable portfolios should consider growth stocks vs. value stocks—and then buy some of both.
Investors who want to build profitable portfolios should consider growth stocks vs. value stocks—and then buy some of both.
One of the sweetest and most profitable… Read More
Learn everything you need to know in '7 Pro Secrets to Value Investing' FREE Special Report from The Successful Investor.
Canadian Value Stocks:
How to Spot Undervalued Stocks
PLUS! Our Top 4 Value Stocks
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