The Art of Investing > 자유게시판

Financial ratios are a essential tool in analyzing investments, helping you to fully appreciate the financial condition of a business or industry. By reviewing these ratios, you can make more informed investment decisions and avoid costly mistakes. In this publication, we will talk about the most common financial ratios used to assay investments and how to fathom them.

Current Ratio

The current ratio is one of the most elemental financial ratios used to evaluate a company's liquidity. It is calculated by separating the company's current assets by its current liabilities. A greater-than-average current ratio indicates that a company has plenty cash and other liquid goods to meet its near-term obligations. A current ratio of 1:1 or inferior may indicate a cash flow problem, while a current ratio of 2:1 or superior is generally considered a sign of good cash flow.

Debt-to-Equity Ratio

The debt-to-equity ratio gauges a company's level of obligation. It is calculated by allocating the company's total liabilities by its shareholder equity. A extreme debt-to-equity ratio may indicate that a company is over-extended and is at risk of breaking on its debt liabilities. On the other hand, a inferior debt-to-equity ratio may indicate that a company is wisely leveraged and has a lesser risk attributes.

Return on Equity (ROE)

ROE is a profitability ratio that measures a company's return on assets. It is calculated by allocating the company's net income by its shareholder equity. A excessive ROE indicates that a company is generating a high return on its shareholders' capital and is a good investment chance. A lesser-than-average ROE may indicate that a company is not producing sufficient returns and is a poor investment opportunity.

Price-to-Earnings (P/E) Ratio

The P/E ratio is another profitability ratio that measures a company's price relative to its income. It is calculated by allocating the company's current stock price by its revenues per share. A excessive P/E ratio may indicate that a company's stock is over-priced and is a poor investment opportunity. On the other hand, a inferior P/E ratio may indicate that a company's stock is undervalued and is a good investment opportunity.

Operating Cash Flow Margin

Operating cash flow margin evaluates a company's ability to produce cash from its operations. It is calculated by dividing the company's operating cash flow by its revenue. A excessive operating cash flow margin indicates that a company is generating a high level of cash from its operations and is a good investment chance.

Efficiency Ratios

Efficiency ratios assess a company's ability to use its resources and generate sales. Some common efficiency ratios include:

Asset turnover ratio: evaluates the company's ability to produce sales from its assets
Inventory turnover ratio: gauges the company's ability to distribute its inventory quickly
Accounts receivable turnover ratio: measures the company's ability to recover its accounts receivable quickly

How to Use Financial Ratios

When examining investments, you should take a selection of financial ratios to get a complete view of the company's financial health and returns. Here are some tips to keep in mind:

employ multiple financial ratios to get a entire view of a company's financial health and yield
consider for trends in financial ratios over time to identify areas of betterment or decline
assess financial ratios to industry averages to establish if a company is leading or under-distancing its peers

• reckon non-financial factors such as management quality, industry trends, and competitive situation when making investment decisions
  
  

By utilizing financial ratios to evaluate investments, you can make more informed investment choices and circumnavigate costly mistakes. Remember to reckon a selection of financial ratios and My profile non-financial factors to get a comprehensive view of a company's financial condition and returns.