Determining the strength of the company and growth possibilities of its stocks are important steps in stock picking with a long-term profit goal. Traders and investors use many technical indicators and ratios for this purpose. Below are some of the important ratios to be considered when picking good stocks.
- Reserves and ploughback : Reserves are the accumulative profit of the company and plaughback is the profit available for adding to reserve after expenses and dividend payoffs. Growth companies usually have high reserve and high ploughback.
- Book value : shows the worthiness of company shares. Book value per share is the ratio between total asset minus total liabilities of the company and total equity shares.
- EPS (Earnings Per Share) ratio : one of the most important investment ratio. Is calculated as profit after tax divided by number of issued equity shares.
- P/E (Price to Earning) ratio : shows the relationship of market price of stock with earnings per share (EPS).
- Dividends : Many investors own stocks for yielding dividends. Although most growth companies offer very small dividends at their growing phase; they offer good returns over long periods of time.
- PEG (Price/Earnings to Growth) ratio : shows whether a stock is fully or over or under priced. It is a comparison of P/E ratio of the company with the expected future growth of the company.
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