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Financial Ratios

Analyzing the most important financial ratios of a stock is an excellent way to understand how efficient and profitable a company is. This, in turn, can lead you to making better decisions when it comes to buying quality stocks. Below is a list of some of the most important ratios the pros often look at.

However, you should always consider what time period each number represents (e.g., the P/E ratio). For example, the P/E can be TTM P/E (the P/E for the “Trailing Twelve Months”), MRQ P/E (P/E for the “Most Recent Quarter”) or “forward” P/E (which is based on earnings estimates).

Valuation & Yield

  1. Price to Earnings Ratio (P/E)
  2. Price to Book Value (P/B)
  3. Earnings Yield
  4. Dividend Yield

Liquidity

  1. Current Ratio
  2. Quick Ratio
  3. Cash Ratio

Debt Ratios

  1. Debt to Equity
  2. Interest Coverage

Profitability

  1. Gross Margin
  2. Operating Margin
  3. Net Margin
  4. Free Cash Flow Margin
  5. Return On Assets
  6. Return On Equity
  7. Return On Invested Capital