PRICE RATIO

1) Price-to-Earnings Ratio (P/E)

What you need: Income Statement, Most Recent Stock Price
The formula: P/E Ratio = Price per Share / Earnings Per Share
What it means: Think of the price-to-earnings ratio as the price you'll pay for $1 of earnings. A very,
very general rule of thumb is that shares trading at a "low" P/E are a value, though the definition of
"low" varies from industry to industry.
5) Dividend Yield
What you need: Income Statement, Most Recent Stock Price
The formula: Dividend Yield = Dividend per Share / Price per Share
What it means: Dividends are the main way companies return money to their shareholders. If a
firm pays a dividend, it will be listed on the balance sheet, right above the bottom line. Dividend
yield is used to compare different dividend-paying stocks. Some people prefer to invest in companies
with a steady dividend, even if the dividend yield is low, while others prefer to invest in stocks with a
high dividend yield.
Price-to-Book Ratio (P/B)
What you need: Balance Sheet, Most Recent Stock Price
The formula: P/B Ratio = Price per Share / Book Value per Share
What it means: Book value (BV) is already listed on the balance sheet, it's just under a different
name: shareholder equity. Equity is the portion of the company that owners (i.e. shareholders) own
free and clear. Dividing book value by the number of shares outstanding gives you book value per
share.
Like P/E, the P/B ratio is essentially the number of dollars you'll have to pay for $1 of equity. And like
P/E, there are different criteria for what makes a P/B ratio "high" or "low."

6) Dividend Payout Ratio
What you need: Income Statement
The formula: Dividend Payout Ratio = Dividend / Net Income
What it means: The percentage of profits distributed as a dividend is called the dividend payout
ratio. Some companies maintain a steady payout ratio, while other try to maintain a steady number of
dollars paid out each year (which means the payout ratio will fluctuate). Each company sets its own
dividend policy according to what it thinks is in the best interest of its shareholders. Income investors
should keep an especially close eye on changes in dividend policy
PROFITABILITY RATIO:
7) Return on Assets (ROA)
What you need: Income Statement, Balance Sheet
The formula: Return on Assets = Net Income / Average Total Assets
What it means: A company buys assets (factories, equipment, etc.) in order to conduct its
business.ROA tells you how good the company is at using its assets to make money. For example, if
Company A reported $10,000 of net income and owns $100,000 in assets, its ROA is 10%. For ever $1
of assets it owns, it can generate $0.10 in profits each year. With ROA, higher is better.
8) Return on Equity (ROE)
What you need: Income Statement, Balance Sheet
The formula: Return on Equity = Net Income / Average Stockholder Equity
What it means: Equity is another word for ownership. ROE tells you how good a company is at
rewarding its shareholders for their investment. For example, if Company B reported $10,000 of net
income and its shareholders have $200,000 in equity, its ROE is 5%. For every $1 of equity
shareholders own, the company generates $0.05 in profits each year. As with ROA, higher is better.
ROCE:
ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed
Capital employed = (Total Assets Current Liabilities)
Investors usually take Avg Captial Employed. This takes the average of opening and closing capital
employed for the time period
9) Profit Margin
What you need: Income Statement
The formula: Profit Margin = Net Income / Sales
What it means: Profit margin calculates how much of a company's total sales flow through to the
bottom line. As you can probably tell, higher profits are better for shareholders, as is a high (and/or
increasing) profit margin.
10) Current Ratio
What you need: Balance Sheet
The formula: Current Ratio = Current Assets / Current Liabilities
What it means: The current ratio measures a company's ability to pay its short-term liabilities with its
short-term assets. If the ratio is over 1.0, the firm has more short-term assets than short-term debts.
But if the current ratio is less than 1.0, the opposite is true and the company could be vulnerable to
unexpected bumps in the economy or business climate.
11) Quick Ratio
What you need: Balance Sheet
The formula: Quick Ratio = (Current Assets - Inventory) / Current Liabilities
What it means: The quick ratio (also known as the acid-test ratio) is similar to the quick ratio in that
it's a measure of how well a company can meet its short-term financial liabilities. However, it takes
the concept one step further. The quick ratio backs out inventory because it assumes that selling
inventory would take several weeks or months. The quick ratio only takes into account those assets
that could be used to pay short-term debts today.
DEBT RATIOS:
12) Debt to Equity Ratio
What you need: Balance Sheet
The formula: Debt-to-Equity Ratio = Total Liabilities / Total Shareholder Equity
What it means: Total liabilities and total shareholder equity are both found on the balance sheet.
Thedebt-to-equity ratio measures the relationship between the amount of capital that has been
borrowed (i.e. debt) and the amount of capital contributed by shareholders (i.e. equity). Generally
speaking, as a firm's debt-to-equity ratio increases, it becomes more risky because if it becomes
unable to meet its debt obligations, it will be forced into bankruptcy.

13) Interest Coverage Ratio
What you need: Income Statement
The formula: Interest Coverage Ratio = EBIT / Interest Expense
What it means: Both EBIT (aka, operating income) and interest expense are found on the income
statement. The interest coverage ratio, also known as times interest earned (TIE), is a measure of how
well a company can meet its interest payment obligations. If a company can't make enough to make
interest payments, it will be forced into bankruptcy. Anything lower than 1.0 is usually a sign of
trouble.
EFFICIENCY RATIO:
14) Asset Turnover Ratio

What you need: Income Statement, Balance Sheet

The formula: Asset Turnover Ratio = Sales / Average Total Assets

What it means: Like return on assets (ROA), the asset turnover ratio tells you how good the
company is at using its assets to make products to sell. For example, if Company A reported
$100,000 of sales and owns $50,000 in assets, its asset turnover ratio is 2x. For ever $1 of assets it
owns, it can generate $2 in sales each year.

15) Inventory Turnover Ratio

What you need: Income Statement, Balance Sheet

The formula: Inventory Turnover Ratio = Costs of Goods Sold / Average Inventory

What it means: If the company you're analyzing holds has inventory, you want that company to be
selling it as fast as possible, not stockpiling it. The inventory turnover ratio measures this efficiency
in cycling inventory. By dividing costs of goods sold (COGS) by the average amount of inventory the
company held during the period, you can discern how fast the company has to replenish its shelves.
Generally, a high inventory turnover ratio indicates that the firm is selling inventory (thereby having
to spend money to make new inventory) relatively quickly.

EPS = net income preferred income/ weighted average of total no of shares.
For example, assume that a company has a net income of $25 million. If the company pays out $1
million in preferred dividends and has 10 million shares for half of the year and 15 million shares for the
other half, the EPS would be $1.92 (24/12.5). First, the $1 million is deducted from the net income to get
$24 million, then a weighted average is taken to find the number of shares outstanding (0.5 x 10M+ 0.5
x 15M = 12.5M)