10 Ratios Every Stock Market Investor Should Know

Earnings Per Share (EPS)

It is the Net Profit of a company expressed per equity share. Companies with increasing trend of EPS are perceived favourably in the stock market.

EPS = Net Profit / Total Equity Shares

Return on Equity (ROE)

It measures the return that shareholders get from the business and overall earnings. 

ROE = (Net Profit / Average Stockholder Equity)

Current Ratio

It shows the liquidity position, that is, how equipped is the company in meeting its short-term obligations with short-term assets.

Current Ratio (Current Assets / Current Liabilities)

Price to Earnings (PE) Ratio

It shows how much stock investors are paying for each rupee of earnings. It shows if the market is overvaluing or undervaluing the company.

P/E Ratio = (Market Price per share / Earnings per share)

Price to Book Value (P/BV) Ratio

It is used to compare a company's market price to its book value. Book value is the amount that will remain if the company liquidates its assets and repays all its liabilities.

P/BV Ratio = (Market price per share / Book value per share)

PEG ratio

It is used to know the relationship between the price of a stock, earnings per share (EPS) and the company's growth. It helps investors to value the stock vis a vis the growth it offers.

PEG Ratio = (PE Ratio / Projected Annual Growth in Earnings)

Asset Turnover Ratio

The higher the ratio, the better it is, as it indicates that the company is generating more revenue per rupee spent on the asset.

Asset Turnover Ratio = (Sales / Average Total Assets)

Debt to Equity Ratio

It is useful in assessing how much leverage a company has. More the leverage more riskier the company's financial position will be.

Debt to Equity Ratio = Total Debt / Total Shareholder's Equity

Interest Coverage Ratio

The interest coverage ratio is a measure of the number of times a company could make the interest payments on its debt with its EBIT. 

Interest Coverage Ratio = (EBIT / Interest Expense)

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