Investment stock market world ratio 2021 - What are the ratios you should watch for if you are starting to invest.

Getting started in the world of markets and investment can be a complicated task. It requires prior knowledge to deal with to protect your capital as much as possible.

Not knowing how to invest well in the stock market can make the loss of the money used. Training is essential, as well as knowing what are the criteria that have to be considered when deciding which is the most appropriate strategy.

In this sense, in order to have greater control over the money invested, it is essential to know what ratios should be monitored.

Stock ratios are tools used to determine the financial situation of a company or the valuation of a publicly traded company in terms of comparison with the market.

Investment stock market world ratio 202

This type of financial ratios is often used to determine whether a company is listed at a good price, but can also be used for other purposes, such as determining a company's indebtedness, liquidity or the average time it takes to collect from creditors.

Given this backdrop, what ratios should you keep in mind if you are starting out in the investment landscape?

One of the most representative ratios on the stock market is known as PER or the price-profit ratio of a company. It is a widely used variable that allows us to elucidate if the price of a share is high or if, on the contrary, it is not overvalued (it is cheap).

This ratio indicates how many times a company's annual net profit is contained when buying a share of its own. It is obtained by dividing a company's market capitalization by its net profit.

What it really allows to describe is the number of years that it will take the holder of a share to recover his investment taking into account the profits that a company generates. Thus, when the PER is higher, it means that the investor is paying more money for each unit of profit that the company generates.

Investment stock market world ratio 202

For example, when the PER of a company is higher than 20, it is possible that it is overvalued by investors or that a bubble is occurring in the sector in which it is framed.

But PER should not be taken as an absolute value. On the other hand, it may be useful to compare the PER of a company with that of a competitor, with the average PER of the market or the historical average PER of the share.
Another of the most used ratios to find out which companies it is most interesting to invest in is the ROE (Return on Equity). Mainly, it makes it possible to determine what profit a company makes for each euro of capital invested.

The ROE is the percentage resulting from dividing the net profit of a company after paying taxes on its own funds or own capital. The higher it is, the greater the profitability a company can generate by investing its own resources.

As with the rest of the ratios, it is useful when compared with the average ROE of the sector to which the company belongs and with that of its most direct competitors.

It is also quite common to look at the parameters –especially in the United States– of profit per share.

Investment stock market world ratio 202

This is calculated by dividing the total number of shares a company holds by its profits. This metric allows determining what part of the profit obtained by the company will receive the holder of a share. It measures very well the long-term growth capacity of a publicly traded business.

This metric indicates what profit the shareholder will get from the distribution of dividends. Usually, a company delivers dividends when its situation is good. Although not always the case, it is a factor to take into account when buying shares.

Dividend yield is measured as a percentage and allows us to know how much of the money invested the shareholder recovers with the distribution of dividends. The two ways to obtain profitability when investing in shares, are the increase in its stock price and dividend yield.

Knowing the level of solvency of a company is essential when looking to invest with stability.

In this sense, knowing the volume of debt of a company with respect to its net worth is key. It allows you to get an idea of the weight that the debt has in the company and if it has the capacity to repay it with the capital that it invoices.

Investment stock market world ratio 202

Other variables on which the investor has to focus when entering the world of markets is the turnover of a company. This is all the income you have earned from your activities.

But also the net profit of a company, which is calculated by subtracting the expenses from the income generated in a given period. That is, it is the money that a company has left after paying debt, taxes or other expenses.

It is essential to know if the company in which we want to invest bills with its activity and if this billing brings benefits. Also, it is important to know what volume of benefits you have obtained in recent years and whether these have been increasing progressively.

Finally, cash flows collect relevant information about the outflow and inflow of money in a company during a given period. They are an important indicator of the liquidity that a company has and its ability to meet its debt, to buy back shares or to make investments without having to borrow.

For this reason, it is a very revealing fact. A company with recurring cash flows and moderate debt levels, usually has greater potential to appreciate on the stock market and generate value for its investors.