How to use financial ratios to pick winning stocks

10 financial ratios that every investor should know

There are many ratios that you can consider before investing in stocks, but here are 10 of the most important ones:

Price-to-earnings ratio (P/E ratio): The P/E ratio is a measure of how much investors are willing to pay for each rupee of earnings. A high P/E ratio means that investors are paying a premium for the stock, while a low P/E ratio means that investors are paying a discount.

Price-to-book ratio (P/B ratio): The P/B ratio is a measure of how much investors are willing to pay for each rupee of book value. Book value is the value of a company's assets minus its liabilities. A high P/B ratio means that investors are paying a premium for the stock, while a low P/B ratio means that investors are paying a discount.

Earnings per share (EPS): EPS is a measure of a company's profits per share. A high EPS means that a company is profitable, while a low EPS means that a company is not profitable.

Dividend yield: The dividend yield is a measure of how much a company pays out in dividends each year as a percentage of its stock price. A high dividend yield means that a company pays out a lot of dividends, while a low dividend yield means that a company pays out very few dividends.

Debt-to-equity ratio: The debt-to-equity ratio is a measure of how much debt a company has compared to its equity. A high debt-to-equity ratio means that a company is more leveraged, while a low debt-to-equity ratio means that a company is less leveraged.

Return on equity (ROE): ROE is a measure of how much profit a company generates from its shareholders' equity. A high ROE means that a company is efficient at using its shareholders' money to generate profits.

Return on assets (ROA): ROA is a measure of how much profit a company generates from its assets. A high ROA means that a company is efficient at using its assets to generate profits.

Free cash flow (FCF): FCF is a measure of how much cash a company generates after paying its operating expenses and capital expenditures. A high FCF means that a company has a lot of cash flow available to invest in its business or return to shareholders.

Net profit margin: Net profit margin is a measure of how much profit a company generates from its sales. A high net profit margin means that a company is efficient at turning its sales into profits.

Current ratio: The current ratio is a measure of a company's ability to meet its short-term obligations. A high current ratio means that a company has plenty of liquid assets to meet its short-term obligations.

These are just a few of the ratios that you can consider before investing in stocks. It's important to use a variety of ratios to get a complete picture of a company's financial health. You should also consider other factors, such as the company's management team, its products or services, and its competitive landscape.