Earnings per share (EPS)
Generally speaking this measures how well the company is doing. EPS is the [profit derivable to shareholders / by the number of shares in issue during the year]. The higher the EPS of a company, the better for traders.
Consistent EPS growth is also important to traders as it shows the company is growing and therefore its share price is likely to grow, resulting in capital gains for traders!
Price/Earnings ratio (P/E ratio)
The price earnings ratio values a company against its per share earnings. The ratio is worked out by [current share price / earnings per share].
The P/E ratio helps a trader measure a stock against its competitors or the sector as a whole. If a company's P/E ratio is higher than another companies or the sectors then the market rates it highly. If it is lower than its competitors then it is best to leave the stock alone if you are buying.
Current ratio
'The current ration measures a company's liquidity. It determines the companies ability to pay its short term debts with its short term assets.
The formula to work out the current ratio is [current assets / current liabilities].
If assets cover liabilities then the current ration will be greater than 1.
When buying a stock for a lengthy period of time it is important to look for companies whose current ratios lie around 1.3 - 2.5. Any lower than and the company may have trouble paying of its short term debts. Any higher might indicate that the company is not using its capital in the most efficient way. Figures outside this ratio means the company will struggle to grow and therefore their share price will struggle to grow.
Note: Companies key financial information is nearly always listed on sites that offer free practice accounts. Looking at who turns over the most money and who generates the most profits makes interesting reading! For a good graphical view of company financials use ADVFN.com.
