1. Current financial status

2. Peer comparison and market valuation (is the stock price reasonable?)

3. Investment potential (is the company worth investing in?)

Fundamental analysis, which relies on financial ratios, helps investors determine a stock's current worth and market perception. While some investors rely solely on fundamental analysis, others combine it with other tools, such as technical analysis, to make informed investment decisions.

Some common financial ratios include:

• Liquidity ratios (e.g., Current Ratio)

• Profitability ratios (e.g., Gross Margin, Return on Equity)

• Efficiency ratios (e.g., Asset Turnover)

• Solvency ratios (e.g., Debt-to-Equity)

By analyzing these ratios, investors can gain a deeper understanding of a company's financial position and make more informed investment decisions.

Understanding these 12 financial ratios is essential for valuing a stock and tracking its performance. Even if you don't plan to do an in-depth fundamental analysis, knowing these ratios and terms will help you make informed investment decisions.

Here's a brief overview of each ratio:

1. EPS (Earnings per Share) - Profit per share

2. P/E (Price to Earnings Ratio) - Stock price relative to earnings

3. Market Capitalization - Company's market value

4. P/S (Price to Sales) - Stock price relative to sales

5. P/B (Price to Book) - Stock price relative to book value

6. Dividend Payout Ratio - Percentage of earnings paid as dividends

7. Dividend Yield - Annual dividend per share as a percentage of stock price

8. Book Value - Net asset value per share

9. Return on Equity (ROE) - Profitability relative to shareholder equity

10. PEG Ratio - P/E ratio relative to earnings growth

11. Interest Coverage Ratio - Ability to pay interest expenses

12. Current and Quick Ratios - Liquidity and ability to pay short-term debts

These ratios are readily available on financial websites like, making it easy to access and analyze them. Great job summarizing these key ratios!