You can learn this financial ratio analysis with stock fundamental analysis, especially for financial statement analysis. Ratio analysis is one of the financial statements that we can do by comparing the important components in each financial statement post.
The purpose of this kind of analysis is so that you can understand in more detail the financial performance of the company from a broad perspective. In addition, you can also analyze more about financial performance, both in terms of profitability, and capital structure, and see stock valuations.
Financial Ratio Analysis You Can Know and Understand
When you want to invest in stocks, you must first understand the analysis for the fundamental analysis section. However, the amount of this analysis is also very large and in practice will be noticed by investors.
So, so that you don’t waste time analyzing financial statements, you should prioritize ratio analysis that is the focus of investors. For more details, you can read the Beginner Expert Stock Fundamental Analysis Ebook.
Return on Equity (ROE)
ROE is a comparison between net income and local equity. ROE will also show the company’s ability to generate net income with capital.
The greater the ROE, the better the profitability of the company. In addition, ROE is also a measure of the company’s ability to satisfy its shareholders such as dividends.
DER (Debt to Equity Ratio)
In financial ratio analysis, there is a DER which is the ratio between total debt and total equity. This is a ratio that is able to show the capital structure of the company.
If the company has very large debt funding, it is certainly dangerous, especially for the survival of the company. When the company has a large DER, usually investors will also immediately sell the shares.
To compare whether it is large or not, you must first compare the DER with the same sector of the company. If the company’s DER is below the average, it can be said to be reasonable.
PER (Price Earning Ratio)
There is also a financial ratio analysis PER which is often used to see stock valuations by means of simple calculations. Usually, this valuation is useful to see the high and low prices of shares in a company fundamentally. The lower the PER value, the cheaper the stock valuation will be.
EPS Earnings per Share (EPS)
This is a ratio that is usually used in calculating the number of earnings per share in a company. EPS is also a market ratio and profitability ratio. The bigger it is, the better the profitability.
In addition, a large EPS indicates that a company also has advantages in its market. High EPS will show the company’s ability to distribute dividends to shareholders.
PBV (Price to Book Value)
PBV is a useful analysis to see stock valuations. The difference with PER, this PBV uses equity or book value per share to calculate its valuation.
This concept is the same as PER. If the PBV value is low, it can also be said that the stock is getting cheaper in terms of valuation, and vice versa
In financial ratio analysis, especially stock valuation analysis. You can combine this PER and PBV. If the stock has the same low PBV and PER followed by good fundamentals, you can consider investing.