{"id":4683,"date":"2021-03-15T12:46:45","date_gmt":"2021-03-15T04:46:45","guid":{"rendered":"https:\/\/www.investagrams.com\/daily\/?p=4683"},"modified":"2021-03-16T12:37:18","modified_gmt":"2021-03-16T04:37:18","slug":"financial-ratios-for-newbies","status":"publish","type":"post","link":"https:\/\/www.investagrams.com\/daily\/2021\/03\/financial-ratios-for-newbies\/","title":{"rendered":"Financial Ratios for Beginners"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Introduction\u00a0<\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">What are Financial Ratios?\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">What are they used for?\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Examples of Financial Ratios\u00a0<\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">P\/E Ratio\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">EPS\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">ROE\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">PEG Ratio\u00a0<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Dividend Yield\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Experienced investors and bankers talk about Financial Ratios all of the time. You may be familiar with a couple of them like P\/E Ratio and EPS, but have no idea what picture they paint. Financial ratios are values derived from financial statements to come up with useful information about a company. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The numbers from the financial statements are used to conduct quantitative analysis and assess a variety of things such as growth, profitability, rates of return etc. The information derived from these ratios would help you create decisions and more accurately predict the performance of a stock.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There are a lot of financial ratios out there, financial analysts and accountants may use every single one of them everyday, but to help you ease into the concept of Financial Ratios it would be best to focus on these five financial ratios:\u00a0<\/span><\/p>\n<h2><b>P\/E Ratio\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">This is perhaps one of the best and most used financial ratios. If P\/E Ratio seems familiar to you, maybe it\u2019s because it\u2019s commonly shown in the stock\u2019s summary along with other useful information such as the Open, Close, Market Cap, and Volume. The Price\/Earnings ratio is used to value a company by comparing its current share price to its per-share earnings or EPS which we would discuss later. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">This can be used to compare a company to its historical record. A high P\/E ratio signifies a company\u2019s stock is overvalued, meaning investors are expecting high growth rates. Companies that have a net loss do not have a P\/E ratio since nothing would be put in the denominator.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-4685 size-full\" src=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/PE1.png\" alt=\"\" width=\"692\" height=\"136\" srcset=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/PE1.png 692w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/PE1-300x59.png 300w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/PE1-610x120.png 610w\" sizes=\"auto, (max-width: 692px) 100vw, 692px\" \/><\/p>\n<h2><b>EPS\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">EPS is another common financial ratio because it tells us about the company\u2019s profitability. Earnings Per Share is derived by dividing the company\u2019s profit by the outstanding shares of its common stock. A company with higher EPS means that it is considered profitable. Investors consider stocks with higher EPS as stocks of greater value since the company has shown to have higher profits relative to its share price. EPS can be in different forms such as excluding extraordinary items or discontinued operations, or on a diluted basis.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-4686 size-full\" src=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe2.png\" alt=\"\" width=\"1138\" height=\"112\" srcset=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe2.png 1138w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe2-300x30.png 300w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe2-768x76.png 768w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe2-1024x101.png 1024w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe2-610x60.png 610w\" sizes=\"auto, (max-width: 1138px) 100vw, 1138px\" \/><\/p>\n<h2><b>ROE\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Return on Equity calculates a company\u2019s financial performance by dividing net income by the shareholders\u2019 equity. ROE is a measure of profitability in relation to the stockholders\u2019 equity. An ROE value of a particular stock is good or bad depending on the ROE of similar stocks. The rule of thumb is to<\/span><\/p>\n<p><span style=\"font-weight: 400;\">target the ROE that is just above or equal to the average. Growth rates and dividend growth rates can also be estimated ung ROE.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-4689 size-full\" src=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe3.png\" alt=\"\" width=\"1090\" height=\"149\" srcset=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe3.png 1090w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe3-300x41.png 300w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe3-768x105.png 768w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe3-1024x140.png 1024w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe3-610x83.png 610w\" sizes=\"auto, (max-width: 1090px) 100vw, 1090px\" \/><\/p>\n<h2><b>PEG Ratio\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">The price\/earnings to growth ratio is one of the more unheard of financial ratios as compared to the ones that I have talked about. The PEG ratio is derived by dividing the P\/E ratio by the growth rate of its earnings for a specific period. The PEG is useful in determining a stock\u2019s value while also considering the company\u2019s expected earnings growth. It is considered to give a better picture than just the P\/E ratio. The difference between the two is that the PEG ratio adds in expected earnings growth into the formula. It is usually used as an indicator of a stock\u2019s true value.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-4688 size-full\" src=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe4.png\" alt=\"\" width=\"590\" height=\"147\" srcset=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe4.png 590w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe4-300x75.png 300w\" sizes=\"auto, (max-width: 590px) 100vw, 590px\" \/><\/p>\n<h2><b>Dividend Yield\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">This financial ratio shows the amount a company pays out in dividends per year relative to its stock price. This is a very good indicator for investors who are looking to position themselves for the long term. Compared to the other financial ratios, this financial ratio is more straightforward in what the result of the ratio tells us. It is worth mentioning that higher dividend yield doesn\u2019t automatically equate to a good investment opportunity as high dividend yield can be attained by declining stock prices.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-4687 size-full\" src=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe5.png\" alt=\"\" width=\"1102\" height=\"83\" srcset=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe5.png 1102w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe5-300x23.png 300w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe5-768x58.png 768w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe5-1024x77.png 1024w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/pe5-610x46.png 610w\" sizes=\"auto, (max-width: 1102px) 100vw, 1102px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">In sum, just like indicators and many investing strategies, different financial ratios are more useful to specific types of investors. These are very useful when making decisions and add an extra layer of thought before going into a position. These tools provide an inside glance at the position of the company you are going to invest on. What technical analysis and fundamental analysis cannot predict may be seen when comparing these financial ratios.<\/span><\/p>\n<hr \/>\n<p><a href=\"http:\/\/www.investagrams.com\/prime\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-4664 size-full\" src=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/01.png\" alt=\"\" width=\"960\" height=\"640\" srcset=\"https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/01.png 960w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/01-300x200.png 300w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/01-768x512.png 768w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/01-150x100.png 150w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/01-370x247.png 370w, https:\/\/dailymedia.investagrams.com\/investadaily\/2021\/03\/01-610x407.png 610w\" sizes=\"auto, (max-width: 960px) 100vw, 960px\" \/><\/a><\/p>\n<div style=\"margin-top: 0px; margin-bottom: 0px;\" class=\"sharethis-inline-reaction-buttons\" ><\/div><div style=\"margin-top: 30px; margin-bottom: 50px;\" class=\"sharethis-inline-share-buttons\" ><\/div><span class=\"et_bloom_bottom_trigger\"><\/span>","protected":false},"excerpt":{"rendered":"<p>Introduction\u00a0 What are Financial Ratios?\u00a0 What are they used for?\u00a0 Examples of Financial Ratios\u00a0 P\/E Ratio\u00a0 EPS\u00a0 ROE\u00a0 PEG Ratio\u00a0 Dividend Yield\u00a0 Experienced investors and bankers talk about Financial Ratios all of the time. You may be familiar with a couple of them like P\/E Ratio and EPS, but have no idea what picture they [&hellip;]<\/p>\n","protected":false},"author":3,"featured_media":4690,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"cybocfi_hide_featured_image":"","footnotes":""},"categories":[36,34],"tags":[54,62,57,46],"class_list":["post-4683","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-how-to-advice","category-latest-posts","tag-beginner","tag-charting","tag-fundamental-analysis","tag-how-to"],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/posts\/4683","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/comments?post=4683"}],"version-history":[{"count":9,"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/posts\/4683\/revisions"}],"predecessor-version":[{"id":4699,"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/posts\/4683\/revisions\/4699"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/media\/4690"}],"wp:attachment":[{"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/media?parent=4683"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/categories?post=4683"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investagrams.com\/daily\/wp-json\/wp\/v2\/tags?post=4683"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}