Friday, December 24, 2010

Financial Measures to Consider before Investing in Nse/Bse Stock

You’re thinking of buying nse Bse Equity stock in a company, but before you invest your hard-earned money in hopes of a profitable return, check out some financial ratios that can help indicate whether the company is on sound financial footing. Here are key measures to consider:

*Price-to-earnings ratio (P/E): For large cap stocks, the ratio should be under 20. For all stocks (including growth, small cap, and speculative issues), it shouldn’t exceed 40.
*Price to sales ratio (PSR): The PSR should be as close to 1 as possible.
*Return on equity (ROE): ROE should be going up by at least 10 percent per year.
*Earnings growth: Earnings should be at least 10 percent higher than the year before. This rate should be maintained over several years.
*Debt to asset ratio: Debt should be half of assets or less.

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