Beginners Guide - Financial Ratios before picking a stock in NEW TO TRADING & INVESTMENTS? - Current Ratio: Gives a sense of comfort, that company is not in any short term liquidity problem. Should be at ...
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Financial Ratios before picking a stock

  1. Financial Ratios before picking a stock

    Current Ratio: Gives a sense of comfort, that company is not in any short term liquidity problem. Should be at least greater than 1

    Interest Coverage Ratio : It gives a fair indication of whether the company will be able to pay off its debt properly. For example, companies like Suzlon have a very low Interest coverage ratio suggesting they are in a fairly bad position.
    Net Profit Margin: Varies from industry to industry. If companies increase their profitability margin over years it may be because they would have improved their operational efficiency, paid off their debt etc. Increasing NPM is a very good sign

    Return On Equity: A ratio which Warren Buffet strongly believes upon. It is the return which the equity investors get for their investment on the book value. If the return on equity is consistently higher, then the stock returns will be very good. Dont pick stocks which have ROE less than 5%

    Debt Equity Ratio: Leverage is a double edged sword. Increasing debts with no proper strategy for increasing the sales/profitability or huge debts for an acquisition which fails subsequently are all some warning signs of a sinking ship.

  2. Quote Originally Posted by Bartholomew View Post
    Thanks for giving a very useful calculations for many persons like who are in a fix whether to invest or not in a critical situation prevailing right now in this complex economy.Theses ratios are quite a good evaluation of the company and enables the investors to decide where to invest.
    Glad it helps. I too was a budding investor once and all these info helped me a lot.

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