Basic Ratios to Analyse a Stock

Current Market Price

• Tells the price of a stock, which tells you the price that will cost you to buy a share. Pay that price with your stock broker & you will become a shareholder.

Market Cap

• Tells you the total value of the business. Market cap is calculated by getting all of the shares in the business & multiplying it by the price per share.

EPS

• EPS stands for Earnings per Share. Earnings are the same as profit.

PE ratio

• One of the most important ratios to know is because the price & of itself is not important, price relative to profit is very important. PE ratio compares the price you pay for stock to the earnings that stock brings in. If you have a PE ratio of 6, it means, that if earnings stay the same for the next 6 years, you will get your money back after 6 years.

PBV ratio

• Price to Book Value compares the price you pay to the book value you get in return. Book Value is the value of the stock on paper. If you were to sell all the assets of the business & pay off all the liabilities, the book value is what’s left. You have to choose a low price to book value stocks.