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stock investing ratios - investing in the stock market wisely



5/14/2009 - stock investing ratios
In a bad economy anyone will tell you that it’s important to invest wisely in the safest investments that you can find. That’s why there are a lot of stock investing ratios that are important to look at before you invest in a company. People are always thinking of buying more stocks instead of more value. Warren Buffet once said it’s better to own a small percent of a diamond than 100% of a Rhinestone, the same holds true today when it comes to trying to buy value. Basically you should be finding companies that are worthy of your money, instead of diversifying and buying a bunch of random stock. Find a few companies that just can’t be beat and only invest in those and keep investing in those so long as they perform well.

Key to good stocks

So there are some ratios that are used in finance to help investors determine how well off the company is doing and I will explain the ones that I use all the time in my own investing. My first and favorite ratio to look at in a bad economy is the Debt to Equity ratio, which are simply all the total liabilities of the company divided by the equity or assets of the company. The lower a company’s debt to equity ratio the less debt they and you will have to pay in the future. Debt is a pain to a company’s growth and personally I would never invest in a company that has a higher debt to equity ratio of 0.5 percent, it’s just too risky; the better companies have a ratio of LOWER than 0.2 sometimes which are usually the ones that I like investing in after looking at other stock investing ratios. The other important ratio that isn’t looked at enough is ROE return on equity also called return on shareholders equity. Return on Equity is a great measure of return and it is calculated by taking Net Income and dividing it by total equity of those shareholders. This number should be high in value preferably above 25 and sometimes even about 40 depending on the company. The Return on invested capital is another important investing ratio which should be close to the same percent value as return on equity. If you checked the debt to equity ratio though the two numbers should be close in value because debt to equity has already calculated the debt for you. Remember that with any company there is more too it then just the ratios presented but the ones talked about in this article I use the most and I find to be the most helpful so long as the company is also making reasonable earnings.

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