Fundamental analysis metrics help investors evaluate the financial health of a company and make informed investment decisions. Here are the top 10 metrics every investor should know.
Key Takeaways
| →Understand the top 10 fundamental analysis metrics to make informed investment decisions. |
| →Financial ratios and indicators help investors evaluate a company’s financial health and growth potential. |
| →Each metric serves a different purpose and should be used in conjunction with others for a comprehensive analysis. |
| →Understanding these metrics will help investors develop a well-rounded investment strategy. |
Table of content
- 1. Earnings Per Share (EPS)
- 📈 The bottom line for investors
- 2. Price-to-Earnings Ratio (P/E)
- 💰 Is the stock overvalued or undervalued?
- 3. Price-to-Sales Ratio (P/S)
- 🛒 How much are you paying for each dollar of sales?
- 4. Price-to-Book Ratio (P/B)
- 📚 Is the stock trading above or below its book value?
- 5. Dividend Yield
- 💵 How much income can you expect from your investment?
- 6. Current Ratio
- 💼 Can the company pay its short-term obligations?
- 7. Debt-to-Equity Ratio (D/E)
- 🏦 How much debt is the company carrying?
- 8. Return on Equity (ROE)
- 🎯 Is the company effectively using shareholders’ investments?
- 9. Return on Assets (ROA)
- 📊 How efficient is the company in using its assets to generate profit?
- 10. Gross Margin
- 💼 How much profit is the company making from its core business?
- Conclusion
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📈 The bottom line for investors
Earnings Per Share (EPS) is a financial metric that shows the portion of a company’s profit allocated to each outstanding share of common stock. EPS is an important indicator of a company’s profitability and is widely used by investors to determine the attractiveness of a stock.
2. Price-to-Earnings Ratio (P/E)
💰 Is the stock overvalued or undervalued?
The Price-to-Earnings Ratio (P/E) is a valuation ratio calculated by dividing the market price per share by the earnings per share (EPS) over a specific period (usually the last 12 months). This metric helps investors determine if a stock is overvalued or undervalued relative to its earnings potential.
3. Price-to-Sales Ratio (P/S)
🛒 How much are you paying for each dollar of sales?
The Price-to-Sales Ratio (P/S) compares a company’s stock price to its revenue. It is calculated by dividing the market capitalization of a company by its total sales over a specific period (usually the last 12 months). This ratio helps investors gauge the value of a stock relative to its revenue generation.
4. Price-to-Book Ratio (P/B)
📚 Is the stock trading above or below its book value?
The Price-to-Book Ratio (P/B) compares a company’s market value to its book value (net asset value). This ratio is calculated by dividing the market price per share by the book value per share. A lower P/B ratio can indicate that a stock is undervalued, while a higher ratio may suggest overvaluation.
5. Dividend Yield
💵 How much income can you expect from your investment?
Dividend Yield is a financial ratio that shows the annual dividend income an investor can expect to receive from an investment, expressed as a percentage of the stock’s current market price. A higher dividend yield can be an attractive feature for income-focused investors.
6. Current Ratio
💼 Can the company pay its short-term obligations?
The Current Ratio is a liquidity ratio that measures a company’s ability to pay its short-term obligations using its short-term assets. It is calculated by dividing a company’s current assets by its current liabilities. A higher current ratio indicates better short-term financial health.
7. Debt-to-Equity Ratio (D/E)
🏦 How much debt is the company carrying?
The Debt-to-Equity Ratio (D/E) is a financial ratio that compares a company’s total debt to its total equity. This metric helps investors assess a company’s financial leverage and risk profile. A high D/E ratio may indicate that a company has a significant amount of debt relative to its equity, which could be a sign of financial instability.
8. Return on Equity (ROE)
Return on Equity (ROE) is a financial ratio that measures a company’s profitability in relation to the equity held by its shareholders. ROE is calculated by dividing a company’s net income by its average shareholders’ equity. A higher ROE indicates that a company is generating more profit from its shareholders’ investments, which can be an attractive feature for investors.
9. Return on Assets (ROA)
📊 How efficient is the company in using its assets to generate profit?
Return on Assets (ROA) is a financial ratio that measures a company’s profitability in relation to its total assets. ROA is calculated by dividing a company’s net income by its average total assets. A higher ROA indicates that a company is efficiently using its assets to generate profit, which can be a sign of strong management and operational efficiency.
10. Gross Margin
💼 How much profit is the company making from its core business?
Gross Margin is a financial ratio that measures a company’s profitability from its core business operations, excluding indirect costs such as overhead and interest expenses. Gross margin is calculated by dividing a company’s gross profit by its total revenue. A higher gross margin indicates that a company is efficiently generating profit from its core operations.
Conclusion
Understanding these top 10 fundamental analysis metrics can help investors make more informed investment decisions and develop a well-rounded investment strategy. By analyzing a company’s financial health, growth potential, and market valuation, investors can better identify potential investment opportunities and risks.
eToro Trading Education: • Learn more about eToro Trading📝
Trading Patterns:
Portfolio Management:
Trading Platform and Security:
Fundamental Analysis:
- Fundamental Analysis on eToro
- Mastering Fundamental Analysis in Forex Trading
- What is Fundamental Analysis?
- Top 10 Fundamental Analysis Metrics
- How to Do Fundamental Analysis
- Financial Statements for Fundamental Analysis
- Earnings Per Share (EPS)
- Dividend Yields in Fundamental Analysis
- Calculating Intrinsic Value
- The Role of P/E Ratios
- The Impact of Interest Rates
- Fundamental Analysis to Pick Stocks
- Pros and Cons of Fundamental Analysis
- Fundamental Analysis to Successful Investment
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