Some fundamental analysis ratios for newbies

Price-to-earnings (P/E) ratio, which measures a stock’s value by showing you how much you would have to spend to make $1 in profit. P/E ratio assists in comparing the value of one stock in a sector with another. It can also be used as a guide to determine whether a company is currently overvalued or undervalued compared with its historical averages

Debt-equity ratio (D/E), which measures a company’s debt against its assets and gives you insight into how the company is performing relative to its competitors. A low ratio could mean that the company gets most of its funding from its shareholders. It’s important to note that a ‘good’ or ‘bad’ ratio depends on the industry

Return on equity (ROE), which measures a company’s profitability against its equity, expressed as a percentage. It shows you if the company is generating enough income by itself relative to the amount of shareholder investment

Earnings yield, which measures earnings by dividing the earnings per share (EPS) by the share price. Earnings yield is also a value indicator – the higher the earnings yield, the more likely it is that stocks are undervalued

Relative dividend yield, which measures a company’s dividend yield compared to that of the entire index. If you’re looking to buy stock, you should consider the relative dividend yield because it can show if stocks are overvalued or undervalued compared to competitor stocks

Current ratio, which measures a company’s ability to pay off debt. It shows if liabilities can be adequately covered by the available assets. There is a link between this ratio and the stock price. The lower the current ratio, the higher the likelihood that the stock price will continue to go down

Price-earnings to growth (PEG) ratio, which measures the P/E ratio compared to the percentage growth in annual EPS. If you are deciding on which stocks to pick, you should consider the PEG ratio because it could give you an indication of the stock’s fair value

Price-to-book (P/B) ratio, which measures the current market price against a company’s book value. A ratio higher than one often indicates overvalued shares