What are the key financial ratios for stock analysis?

Key ratios include: P/E Ratio (price vs earnings), P/B Ratio (price vs book value), ROE (return on equity), Debt-to-Equity (leverage), Current Ratio (liquidity), and Profit Margins. These help compare companies and identify financial health.

How do you analyze a stock for beginners?

Start by: 1) Understanding the business model, 2) Reading the income statement for revenue and profit trends, 3) Checking the balance sheet for debt levels, 4) Looking at key ratios like P/E and ROE, 5) Comparing to competitors, 6) Estimating intrinsic value.

Fundamental Analysis: How to Analyze Stocks Like a Pro

Fundamental analysis is the cornerstone of intelligent investing. Learn to evaluate companies by examining their financial statements, competitive position, and growth potential.

What is Fundamental Analysis?

Fundamental analysis evaluates a company's true worth by examining its financials, industry position, and economic factors. Unlike technical analysis (which studies price charts), fundamental analysis answers: “Is this business worth the price?”

Goal: Determine a stock's intrinsic value and compare it to the market price to find buying opportunities.

The Three Financial Statements

Every publicly traded company publishes these quarterly and annually:

1. Income Statement

Shows profitability over a period. Key items:

Revenue: Total sales
Gross Profit: Revenue minus cost of goods
Operating Income: Profit from core business
Net Income: Bottom-line profit after all expenses
EPS: Earnings per share

2. Balance Sheet

Snapshot of what the company owns and owes at a point in time:

Assets: Cash, inventory, property, equipment
Liabilities: Debt, accounts payable
Shareholders' Equity: Assets minus liabilities (book value)

3. Cash Flow Statement

Shows actual cash moving in and out:

Operating Cash Flow: Cash from core business
Investing Cash Flow: Capex, acquisitions
Financing Cash Flow: Debt, dividends, buybacks
Free Cash Flow: Operating CF minus Capex

Key Financial Ratios

Ratio	Formula	What It Tells You
P/E Ratio	Price / EPS	How much you pay for each $1 of earnings
P/B Ratio	Price / Book Value	Price vs net assets
ROE	Net Income / Equity	How efficiently company uses shareholder money
ROA	Net Income / Assets	How efficiently company uses all assets
Debt-to-Equity	Total Debt / Equity	Financial leverage (lower = safer)
Current Ratio	Current Assets / Current Liab	Short-term liquidity (>1 = good)
Profit Margin	Net Income / Revenue	Profitability on each dollar of sales

Deep dive: P/E Ratio explained →

Stock Analysis Checklist

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Do I understand how this business makes money?(Business)

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Is revenue growing consistently?(Growth)

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Are profit margins stable or improving?(Profitability)

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Is debt manageable (D/E < 0.5)?(Safety)

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Is ROE above 15%?(Efficiency)

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Does the company have a competitive moat?(Moat)

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Is management shareholder-friendly?(Management)

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Is the stock trading below intrinsic value?(Valuation)

FAQs

What is fundamental analysis?▼

A method of evaluating stocks by examining the underlying business: financial statements, industry position, management, and economic factors to determine intrinsic value.

What are the key ratios for stock analysis?▼

P/E Ratio, P/B Ratio, ROE, Debt-to-Equity, Current Ratio, and Profit Margins. These help compare companies and assess financial health.

How do beginners analyze stocks?▼

Start simple: understand the business, check revenue/profit trends, look at debt levels, compare key ratios to competitors, then estimate if the price is fair.

Practice Fundamental Analysis

Apply what you've learned. Our stock pages show all key metrics in one place.

Analyze Stocks Screen by Ratios

Intrinsic Investor is for educational purposes only. Not financial advice.