Im a strong proponent of fundamental investing. Fundamental investing uses the company’s financial health in order to decide whether it is over or under valued. We call these indicators – fundamental technical indicators. The good news is that they are all mostly correlated with each other so you only actually need a few of them in order to make decisions.

Legendary investors like Benjamin Graham, Peter Lynch and Warren Buffet always looks a company financials when making investment decisions on whether to buy or sell a stock.

1. Price-to-Earnings Ratio (P/E Ratio):

This nifty little tool helps us determine if a stock is a bargain or a splurge! To calculate the P/E ratio, divide the current stock price by the earnings per share (EPS). A high P/E ratio might suggest an overvalued stock, while a low one could indicate a potential hidden gem.

P/E Ratio = Current Stock Price / EPS

2. Price-to-Book Ratio (P/B Ratio):

Imagine this ratio as a treasure map to hidden book value riches! Simply divide the current stock price by the book value per share:

P/B Ratio = Current Stock Price / Book Value per share

3. Dividend Yield (DY):

Ah, the sweet sound of dividends – every investor’s favorite! To find the dividend yield, divide the annual dividend per share by the current stock price. x% dividend yield means you get x% of the stock price for each stock of the company you own as dividend.

Dividend Yield = (Annual Dividend per Share / Current Stock Price) x 100

4. Earnings Per Share (EPS):

EPS is like the heartbeat of a company’s earnings performance. Simply divide the total earnings by the number of outstanding shares:

EPS = (Total Earnings / Number of Outstanding Shares)

5. Debt-to-Equity Ratio (D/E Ratio):

Keep an eye on this powerful indicator to assess a company’s financial health. Divide the total liabilities by the shareholders’ equity. A high D/E ratio might indicate a company’s reliance on debt, while a lower one suggests a more stable fortress.

D/E Ratio = Total Liabilities / Shareholders' Equity

6. Return on Equity (ROE):

Let’s unravel the profitability mystery with ROE! Divide the net income by the shareholders’ equity.A high ROE signifies a company that knows how to win the profitability game

ROE = (Net Income / Shareholders' Equity) x 100

7. Gross Margin (GM):

Ready to slice into the profit pie? Gross Margin will do just that! Calculate it by dividing gross profit by total revenue:

GM = (Gross Profit / Total Revenue) x 100

8. Free Cash Flow (FCF):

Free Cash Flow measures the cash generated by a company after accounting for operating expenses and capital expenditures. To calculate it, subtract capital expenditures from operating cash flow. A positive FCF means the company has ample cash to invest in growth, dividends, or reducing debt – a true goldmine for investors!

FCF = Operating Cash Flow - Capital Expenditures

9. Return on Assets (ROA):

You can assess a company’s efficiency in using its assets to generate profits. To calculate ROA, divide net income by average total assets. A high ROA signifies that the company’s assets are working hard to produce profits.

ROA = (Net Income / Average Total Assets) x 100

10. Price/Earnings to Growth (PEG) Ratio:

PEG Ratio combines the power of P/E Ratio and earnings growth! It helps evaluate a stock’s value relative to its expected earnings growth. Calculate it by dividing the P/E ratio by the company’s projected earnings growth rate,

PEG Ratio = P/E Ratio / Projected Earnings Growth Rate

11. Dividend Payout Ratio (DPR):

DPR measures the portion of earnings distributed to shareholders as dividends. Calculate it by dividing dividends per share by earnings per share. A moderate DPR ensures the company retains enough earnings for growth, while a high DPR means a larger slice of the pie for shareholders

DPR = (Dividends per Share / Earnings per Share) x 100

12. Enterprise Value (EV):

Enterprise Value reveals a company’s total value. To find it, add the market capitalization to total debt, then subtract cash and cash equivalents. EV takes into account both equity and debt, making it a potent weapon for comparing companies with different capital structures.

EV = Market capitalization + Preferred stock + Outstanding debt + Minority interest – Cash and cash equivalents

13. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA):

Prepare to witness the true power of a company’s operating performance! EBITDA showcases earnings before certain accounting factors kick in. EBITDA removes the effects of financing and accounting decisions, enabling a clear view of a company’s operational prowess.

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization

14. EV/EBITDA Ratio:

Combine the might of Enterprise Value and EBITDA to find the EV/EBITDA ratio. It measures a company’s valuation relative to its earnings. A lower ratio may suggest an undervalued gem, while a higher one might indicate an overvalued stock.

EV/EBITDA Ratio = EV / EBITDA

15. Net Margin:

Enter the realm of profitability with Net Margin! It reveals the percentage of revenue converted into profit. Calculate it by dividing net income by total revenue. A higher net margin signifies a company’s efficiency in turning sales into profits.

Net Margin = (Net Income / Total Revenue) x 100

16. Price-to-Sales Ratio (P/S Ratio):

Uncover the sales potential of a company with the Price-to-Sales Ratio! Divide the current market capitalization by total revenue. A lower P/S ratio may indicate an undervalued stock, while a higher one could mean a company’s sales are priced at a premium.

P/S Ratio = Market Capitalization / Total Revenue

We can view all these metrics on yahoo finance.

Eg if we take the stock ticker ‘MSFT’ https://finance.yahoo.com/quote/MSFT/key-statistics?p=MSFT, we can view all of the above metrics there.