Fundamental analysis is a method of evaluating a company’s financial health and performance by analyzing various financial and economic data. There are many ratios that are commonly used in fundamental analysis to assess a company’s financial health and performance. Here are some of the most important ratios:
Price-to-sales ratio (P/S ratio): This is the ratio of a company’s stock price to its revenue per share. It is a measure of how much investors are willing to pay for each dollar of sales generated by the company.
Price-to-book ratio (P/B ratio): This is the ratio of a company’s stock price to its book value per share. Book value is the value of a company’s assets minus its liabilities.
Debt-to-equity ratio (D/E ratio): This is the ratio of a company’s total debt to its total equity. It is a measure of how much debt a company has relative to its equity.
Return on equity (ROE): This is the ratio of a company’s net income to its equity. It is a measure of how much profit a company generates relative to its equity.
Return on assets (ROA): This is the ratio of a company’s net income to its total assets. It is a measure of how efficiently a company uses its assets to generate profit.
Gross profit margin: This is the ratio of a company’s gross profit to its revenue. It is a measure of how much profit a company generates after accounting for the cost of goods sold.
Operating profit margin: This is the ratio of a company’s operating profit to its revenue. It is a measure of how much profit a company generates from its core business operations.
Net profit margin: This is the ratio of a company’s net income to its revenue. It is a measure of how much profit a company generates after accounting for all expenses and taxes.
These ratios can provide valuable insights into a company’s financial health and performance, but they should be used in combination with other factors when making investment decisions. It’s also important to note that different industries may have different benchmark ratios, so it’s important to compare a company’s ratios to those of its peers within the same industry.
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