The Stock Stethoscope

All financial ratios used for analysis in stock market with their ideal ratios.

There are various financial ratios used for analysis in stock market. Here are some of the most commonly used ratios and their ideal ratios:

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

The ideal P/E ratio is subjective and varies depending on the industry, the company’s growth prospects, and the overall market conditions. Generally, a lower P/E ratio is considered better and a P/E ratio of 15-20 is considered normal.

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

The ideal P/B ratio is subjective and varies depending on the industry. A P/B ratio of less than 1 is considered undervalued, while a P/B ratio of greater than 3 is considered overvalued.

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

The ideal D/E ratio is subjective and varies depending on the industry. Generally, a lower D/E ratio is considered better as it indicates the company has less debt and more equity. A D/E ratio of less than 1 is considered healthy.

4. Return on Equity (ROE):

The ideal ROE is subjective and varies depending on the industry. An ROE of 15-20% is considered good, while an ROE of over 25% is considered excellent.

5. Earnings Per Share (EPS):

The ideal EPS is subjective and varies depending on the company’s growth prospects and the overall market conditions. Generally, an EPS growth rate of 10-15% is considered good.

6. Dividend Yield:

The ideal dividend yield is subjective and varies depending on the investor’s goals and the overall market conditions. A dividend yield of 2-3% is considered normal, while a dividend yield of over 5% is considered high.

7. Debt-to-Asset (D/A) Ratio:

The ideal D/A ratio varies depending on the industry and the company’s financial strength. A lower D/A ratio is generally considered better, as it indicates that the company has a lower debt burden relative to its assets. A D/A ratio of less than 0.5 is considered healthy.

8. Gross Profit Margin:

The ideal gross profit margin varies depending on the industry and the company’s financial strength. A higher gross profit margin is generally considered better, as it indicates that the company is generating more profit from its sales. A gross profit margin of over 30% is considered good.

9. Operating Profit Margin:

The ideal operating profit margin varies depending on the industry and the company’s financial strength. A higher operating profit margin is generally considered better, as it indicates that the company is generating more profit from its operations. An operating profit margin of over 10% is considered good.

10. Current Ratio:

The ideal current ratio is subjective and varies depending on the industry and the company’s financial strength. A higher current ratio is generally considered better, as it indicates that the company has sufficient liquidity to pay its short-term obligations. A current ratio of 1.5 or higher is considered healthy.

11. Quick Ratio:

The ideal quick ratio is subjective and varies depending on the industry and the company’s financial strength. A higher quick ratio is generally considered better, as it indicates that the company has a higher level of liquidity and is better able to meet its short-term obligations. A quick ratio of 1 or higher is considered healthy.

12. Return on Assets (ROA):

The ideal return on assets (ROA) varies depending on the industry and the company’s financial strength. A higher ROA is generally considered better, as it indicates that the company is generating more profit from its assets. An ROA of over 10% is considered good.

13. Inventory Turnover:

The ideal inventory turnover varies depending on the industry and the company’s business model. A higher inventory turnover is generally considered better, as it indicates that the company is efficiently managing its inventory and turning over its stock more frequently. An inventory turnover of 4 or higher is considered good.

14. Days Sales Outstanding (DSO):

The ideal days sales outstanding (DSO) varies depending on the industry and the company’s credit policies. A lower DSO is generally considered better, as it indicates that the company is collecting its accounts receivable more quickly. A DSO of less than 60 days is considered good.

15. Price-to-Sales (P/S) Ratio

The ideal price-to-sales (P/S) ratio is subjective and varies depending on the industry and the company’s growth prospects. Generally, a lower P/S ratio is considered better and a P/S ratio of 1 or less is considered normal.

16. Return on Capital Employed (ROCE):

The ideal return on invested capital (ROCE) varies depending on the industry and the company’s financial strength. A higher ROCE is generally considered better, as it indicates that the company is generating a higher return on the capital it has invested. An ROIC of over 10% is considered good.

17. Market Capitalization-to- Revenue (MC/R) Ratio:

The ideal market capitalization-to-revenue (MC/R) ratio is subjective and varies depending on the industry and the company’s growth prospects. Generally, a lower MC/R ratio is considered better and a MC/R ratio of less than 1 is considered normal.

Agin, it’s important to keep in mind that these ratios are just a starting point for analysis and that it’s crucial to consider other factors such as the company’s financial statements, industry trends, and macroeconomic factors before making investment decisionss.