Stock investing requires you to do a careful analysis and research of the company you’re buying stocks from. Part of that analysis comes from the financial data from the business. Crucial to fundamental analysis, financial ratios are relationships determined from a company’s financial information and used for comparison purposes. Although there are multiple ratios, here are some of the most commonly used financial ratios for assessing the company’s value.

Earnings Per Share (EPS)

Earnings Per Share is basically the net profit that a company has made in a given time period divided by the total outstanding shares of the company. Generally, it is a good sign to invest if the EPS this period exceeds performance from the last time period. It can be calculated on an annual or quarterly basis however it’s important to remember that preferred shares are not included while calculating EPS. This is the most important ratio on this list since EPS is also used in various other financial ratios for their calculations.

Price to Book Ratio (PBV)

The PE ratio is one of the most widely used financial ratio analysis among investors for a very long time. A high PE ratio generally shows that the investor is paying more than the share is worth and a low PE ratio is preferred while buying a stock. The definition of low varies from industry to industry so you cannot use this ratio to compare a company of one sector and a company from another sector.

Debt to Equity Ratio (DE)

The DE 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, the higher a company’s DE ratio is, the riskier it becomes to invest in that company since it means that a company is using more leverage despite its weaker equity position.

Return on Equity (ROE)

ROE refers to the amount of net income returned as a percentage of shareholder’s equity. The rule with this formula is always invest in a company with a ROE greater than 20% for at least the last 3 years and year-on-year growth in ROE is also a good sign. It measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders for ther investment. 

Dividend Yield

If dividends are important for you, then this formula is what you need. The dividend yield gives a better picture of whether the stock being assessed comes from a high or low dividend yielding company. The rule with this formula is that a consistent or a growing dividend yield is a good sign for dividend investors.

It is important to note that financial ratios are time sensitive. They can only present a picture of how the business is doing at the time that the figures were prepared. Though this is not a foolproof method in gaining profit, it is a good way to run a quick check on the company’s financial health to make smart and informed decisions.

Having a house to call your own is one of the biggest financial goals of every Filipino. Buying your own house means not worrying about rent, landlords, and most importantly having more control of your own life. Here are some things to consider when saving up to buy your dream home!

1. Visualize your future

This means thinking about where you are 5-10 years from now. where would you want to live in, how many members are there in your household, and if you would have pets to take care of. Knowing the specifications of where you want to live and the number of people or pets there are in your home allows you to prepare in advance when buying for your own house, and it also serves as your motivation to keep on saving for your house

2. Plan

They say failing to plan is planning to fail, and it’s very much true for your finances, especially big ones! For this, you can set up a timeline on when you want to start saving, and set specific amounts for you to reach within a period of time. 

Simple math would be to get 30% of how much a house in the area you want to live costs, and divide it by how many months until when you want to live there. If you’re interested in a 3M house, and you’re planning to move within 5 years, then here’s how much you should save monthly to have enough money for the down payment:

30% of 3m = 900,000php / 60 months = save 15,000 per month to save up for DOWN PAYMENT

3. Create a system for saving

You should save money regularly, religiously, and relentlessly. When encountering a huge financial decision such as buying a house, know that it comes with huge sacrifices as well. It means: Refrain from touching the money you’ve set aside, avoid unnecessary spending, and avoid all budols online.

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People say that there’s always opportunity in a crisis. This belief also applies to the stock market, wherein recessions or just red markets in general are believed to be good sources of investments that can blow the roof once things begin to stabilize. 

Now, does this belief have any bearing? Short answer is yes, but finding opportunities in a red market depends greatly on some factors. Here are some things you need to consider before getting into a red market frenzy.

Background Check

It wouldn’t be a good idea to simply buy anything in a red market. It’s important to remember that such situations are comparable to battlegrounds where you can’t fully know what to expect. Some companies behave differently from others which means some will gain and some will lose and the best way to make more accurate forecasts is by researching thoroughly.

 Finding companies to invest in involves a process called fundamental analysis, and an important part of this process is researching about the company you want to invest in. You have to know what type of industry they are in, if they’re relevant or not within and after the crisis, and make decisions accordingly. You also have to make sure that the company itself is managed correctly to ensure that you can expect better.

Protect Your Buying Power

While it can be tempting to think that putting more money can lead to higher rewards should a position you bought at its lowest makes a reversal at some point in the future, you must still remember to not go all out. Setting a reasonable budget is a crucial means of dealing with a red market frenzy because always remember, “You are wrong until the market proves you right,” and it might just bite you back if you don’t spend wisely.

Instead, protect your buying power enough to always be liquid when necessary. Do not spend all your money on one stock so that you’re still safe in case things get out of hand in the market

Diversify your portfolio

Connected to the last point, it’s good to spend your money on multiple other options because just shelling it out on just one or two can mean lesser chances of success. It’s a good idea to utilize different options from different industries, find some that complement or oppose each other so that you can minimize the chances of your losses to as little as possible.

A good example in the context of the pandemic would be to buy stocks from the food service industry, which is severely affected by the current situations, and complement that by buying from the medical industry, which is at an all-time-high. This way, whatever happens to either position, should the food service industry improve and the other experiences difficulties, you still balance out the outcome.

Red markets, for all their potential, can bite you back if you’re not careful enough. Where there is opportunity also lies risk, so consider these factors before making decisions with your money. Not only will you protect your portfolio, you might just improve it.

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