Top 10 Financial Ratios to use Before Buying a Stock

Maybe you are a beginner and you want to become the Wolf of Wall Street: We have identified the 10 most important financial ratios, which we use before making any stock purchase. Ratios paint a quick snapshot of the quantitative health of a company. An investor should then supplement this with a qualitative scan.

Here is a list of the 10 ratios featured in the video:
10) 00:20 - Operating margin: Before making a purchase consider a company's efficiency.
9) 01:15 - Interest coverage ratio: How easily can a firm cover their interest costs with operating profits
8) 02:10 - Debt to Equity: You may want to consider future risk in case there is a downturn in the economy
7) 03:00 - EV to EBITDA: Our first valuation ratio, EV to EBITDA is a nice way to filter out some stocks.
6) 05:28 - PE Ratio: This is probably the first ratio you learned, it is pretty important for a valuation
5) 06:30 - Reinvestment Rate: I bet you have never seen this one! Consider this idea before making a purchase
4) 07:50 - Earnings Per Share (EPS): A simple one but it is included so you think of a stock as a business not just a ticker symbol
3) 08:30 - Organic Revenue: You need to be skeptical of management's that are always just acquiring companies and promising synergies
2) 09:10 - Organic Operating Income: The same logic as above
1) 09:37 - Return on Invested Capital: ROIC is a great ratio as it is hard to game. It is also impressive to earn strong returns on what the people funding the business want. You could also substitute tangible capital for equity.

Guys if you liked the video, hit the thumbs up and subscribe!

#ValueInvesting, #Buffett, #GARP

Disclaimer: We are not financial advisers, and nothing on this channel is meant to be financial advice. The ideas expressed on this channel are purely opinions and should not be regarded as objective information. Nothing on this channel is a recommendation to buy or sell securities. Do not assume that facts and numbers in any video are accurate. Always do your own due diligence.

[TheMarketisOpen]

Hey guys! Let us know which is your favourite ratio! And what type of educational videos you'd like to see in the future.

[shorty]

Thank you this video is so helpful, subbed!

[Andrea-lfjq]

is there a specific website you would use to look at the financial statements?? i'm using yahoo finance but some of the things are not showing up. like interest expense. thanks

[csanton]

just a few disagreement on ROIC, You deduct cash from debt however cash came from prior year earnings and so if you use that to deduct in the debt capital in a way the return is amplified because you got the help of prior year earnings. ROIC should really just be income compared to company capitalization debt and equity to really measure the return that those invested capital generates without help from using prior year earnings through that cash deduction.

Cash should only be used to reduce debt if you are analyzing the business in a liquidation or net realizable value scenario

Also would like to request if you can give a tutorial the ratios commonly used to asses an equity investment in a bankinband insurance company since their financials are a bit different from a traditional company

[nicosmind]

So was wondering Teslas Reinvestment Ratio compared to the market?

[vvolfflovv]

For my ratios, I first plug stocks into gurufocus.com and look for lots of green and not much red along with the price to owners earnings being under 15 and price to book under 2. These ratios along with macro economics and competitive advantage determine how much I will allocate to each stock based on risk to reward. I'm still pretty new to investing so my strategy is very much open to criticism in order to evolve though.

[phphph]

I really like ratio #5, I have never seen anyone cover that one. see at 6:30

[bornbranded]

where can you get a screener that gives this info out?

[aycaramba]

EBITDA was a blockbuster movie about blue aliens fighting an army of human invaders

[jeevantej]

Make video for how to pick a stock for trading ..can u do that?

[MrFantastic]

I need more clarity on ratio 5 that math doesn't seem right to me for the calculation of next cap ex - depreciation

[FlaschDJ]

Excellent tutorial. Shame there’s so many ads. I’m not composing. The tutorial is free! But it’s certainly disappointing.
Ads aside: d like to see the presentation slowed down. What’s the rush??

[andrewr]

I don't understand how to calculate acquisition operating income

[sinrgy]

These ratios are laughably useless in identifying high return stocks. You can't apply them to start-ups and growth stock pre-revenue or with revenue but pre-profit. Second, it doesn't identify turn out stocks. Those two class of companies represent the highest growth opportunities. If you found a stock that ticked all the boxes of those ratios, you;'d find a stock that trades sideways, in which case you should look at dividends per share. The fact you used apple as the example is evidence you know this too, because apple is the outlier that can tick those boxes and still outperform sp500.