What to look for before
buying stocks?
1. Current Ratio
- Indicates the liquidity of the
company
- Should be >1, means that
the company
- E.g.: DMC with Current ratio
of 2.18, meaning, DMC can
pay their current liabilities
2.18x using their current
assets
2. Total Debt/Total Equity
- Leverage ratio that
calculates the value of total
debt and financial liabilities
against the total
shareholder’s equity
- <0.4 or less than 40% is
desirable
- Meaning, for every 1 peso
that a company uses for its
operation, 40% is financed
from debt
3. Earning per share
- Earnings per share (EPS) is
calculated as a company's
profit divided by the
outstanding shares of its
common stock. The
resulting number serves as
an indicator of a company's
profitability.
- earnings per share is most
valuable when compared
against competitor metrics,
companies of the same
industry, or across a period
of time
4. Tangible Book Value per
share(TBVPS)
- Value of the company’s
tangible assets divided by its
current outstanding shares
- Tangible book value (TBV)
of a company is what
common shareholders can
expect to receive if a firm
goes bankrupt—thereby
forcing the liquidation of its
assets at the book value
price
- Tangible book value
(TBV) of a company is
what common
shareholders can expect
to receive if a firm goes
bankrupt—thereby
forcing the liquidation of
its assets at the book
value price
5. Cash per share
- Cash per share is the
broadest measure of
available cash to a business
divided by the number of
equity shares outstanding
- Broadest measure of
available cash to a business
divided by the number of
equity shares outstanding
- Tells us the percentage of a
company’s share price
available to spend on
strengthening the business,
paying down debt, returning
money to shareholders, and
other positive campaigns
6. Earnings per share
- Describing a public
company’s profit per
outstanding share of stock,
calculated on a quarterly or
annual basis.
- Quarterly or annual net
income divided by the
number of its shares of
stock outstanding
What to look for in Financial
statements of Companies
prior to buying stocks
1. Revenue Growth
2. Net income growth
3. Equity growth
4. Operating cash flow/ Cash from
operating activities