When many new Investors started their journey they tend to invest in stocks based on tips/suggestion instead of doing their own research because they think that doing their own research is difficult , it is true till some extent only there are some good factors even new Investors can use it for research. Keep in mind that these are factors should not be used individually to select the stocks, these should be used together, at least 4/6 should be qualified to select stock.
This is the most known Ratio, but only few of them know how to use it properly, Generally in Bull market most of the companies P/E Ratio will be very expensive that doesn’t mean we should avoid that company, Always compare P/E withing same industry and choose the stocks having P/E near to Industry average P/E. And if you ever choose companies with P/E Ration less than 20% make sure that it is not only Criteria to select the stocks use it along with other ratios.
Many of the new age companies may not generate profits but in future we expect them to grow and generate profits, those companies may not have P/E ratio, to evaluate such type of companies we can use PRICE to BOOK Ratio, It can be used similarly as P/E.
This is most negligible ratio but as a investor you should focus on this as well because ratios like P/E can be easily manipulated, but one can easily cant manipulate Cash flows, By observing Cash flow statements we can identify if company really generated the cash and using it properly.
To Identify the companies which can grow in future we can track the PEG ratio, basically it tell how much scope is their for the company to grow in future
The ROIC ratio tells us of how well a company is using the money it has raised externally to generate returns. Comparing a company's return on invested capital with its weighted average cost of capital (WACC) reveals whether invested capital is being used effectively.
Generally companies which is either Monopoly or Market leader can only generate margin greater than 50%, If you fell like company can be grow further you can select the companies having Gross Margin greater than 20
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