Next video:
Loading the player...

Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.

The price-to-earnings ratio is likely the best known and most valuable. It divides a stock’s current price by its earnings-per-share to reveal the value that investors are willing to pay for each dollar a company earns. A lower ratio means the stock costs less per share for the same level of financial performance than a stock with a higher ratio. P/E ratios are useful for comparing companies within the same industry, not companies in different industries.

The price-to-book ratio shows what investors will pay for each dollar of a company’s assets. It’s the stock’s share price divided by its net assets minus intangibles, such as goodwill. Companies with significant intangibles can have misleading P/B ratios. For most stocks, a ratio of 1.5 or less usually shows a solid value.

The debt-to-equity ratio is a company’s debt divided by its equity. It shows how much debt a company uses in its financing compared to its equity. Debt-to-equity ratios vary among industries, but when a number gets high, it’s a sign that the company is piling up too much debt.

Free cash flow tells investors how much cash a company has left after capital investments. It’s a company’s operating cash flow minus capital expenditures, like the cost of equipment or a building. A positive free cash flow is usually a good sign, and this metric is most revealing in difficult times.

And the price-to-earnings-to-growth ratio can reveal a company that’s undervalued but growing. It’s a company’s PE ratio divided by the growth rate of its earnings over a specific time. This metric varies among different industries.

  1. No results found.
Related Articles
  1. Investing

    5 Must-Have Metrics for Value Investors

    These quick-and-dirty ratios will help you find the most undervalued stocks on the market.
  2. Investing

    What are Metrics?

    Metrics are tools that measure a company’s performance.
  3. Investing

    6 Basic Financial Ratios And What They Reveal

    Here's a brief introduction to six financial ratios every investor should be familiar with.
  4. Investing

    5 Basic Financial Ratios And What They Reveal

    Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
  5. Investing

    Financial Ratios to Spot Companies Headed for Bankruptcy

    Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy.
  6. Investing

    Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  7. Investing

    Useful Balance Sheet Metrics

    These metrics can help you better understand the information found on balance sheets.
  8. Investing

    4 Simple Investing Ratios You Need To Know

    Dissecting a company’s financial statements to uncover ways to make money is a challenging endeavor. Here are four ratios that can help.
  9. Investing

    Sysco and Other Big Movers In Services

    The market has been slipping so far today. The Nasdaq has fallen 0.3%; the S&P 500 has fallen 0.4%; and the Dow has declined 0.5%. The Services sector (IYC) is currently lagging behind the overall ...
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  3. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
  4. Interest Rate Swap

    An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for ...
  5. Custodian

    A financial institution that holds customers' securities for safekeeping so as to minimize the risk of their theft or loss. ...
  6. Supply Chain

    The network created amongst different companies producing, handling and/or distributing a specific product. Specifically, ...
Trading Center