What are the key ratios to consider when investing?

What are the key ratios to consider when investing?

Key ratios include the Price-to-Earnings (P/E) ratio, Debt-to-Equity ratio, and Return on Equity (ROE). They help assess a company's financial health.

How does the P/E ratio affect my investment decisions?

The P/E ratio indicates how much investors are willing to pay for a dollar of earnings. A high P/E may suggest overvaluation, while a low P/E might indicate undervaluation.

What is a good Debt-to-Equity ratio?

A good Debt-to-Equity ratio typically ranges from 1 to 1.5, but it can vary by industry. Lower ratios generally indicate less risk.

Can you explain Return on Equity?

Return on Equity (ROE) measures a company's profitability relative to shareholders' equity. A higher ROE indicates efficient use of equity capital.

How can I use these ratios to compare different companies?

You can use these ratios to benchmark companies within the same industry. Comparing them helps identify which companies are financially stronger.