Top 6 Must-Know Ratios for Smart Investors!@SENSESHAREMARKET-Gaurav @cnbcawaaz

Investing smartly begins with understanding the key financial ratios that drive informed decisions. In this video, we dive into the top 6 must-know ratios for every investor to evaluate the financial health of a company. Whether you're a beginner or seasoned investor, these ratios will help you assess profitability, debt levels, efficiency, and market value. Mastering these will give you the confidence to make smarter investment choices, manage risk, and grow your portfolio.

1. Price to Earnings (P/E) Ratio:
The P/E ratio is one of the most commonly used valuation metrics by investors. It tells you how much investors are willing to pay for each dollar of earnings. A high P/E ratio may indicate that a stock is overvalued or that investors expect high future growth. On the flip side, a low P/E ratio might signal a stock is undervalued. Use the P/E ratio to compare companies within the same industry and assess whether they are over- or under-priced.

2. Price to Book (P/B) Ratio:
The P/B ratio compares a company's market value to its book value (assets minus liabilities). A P/B ratio under 1 suggests the company is undervalued, meaning investors are paying less for what the company's assets are worth. A P/B ratio over 1 could indicate a higher market valuation relative to its asset base. This ratio is particularly useful for investors analyzing value stocks or asset-heavy industries like manufacturing and real estate.

3. Debt to Equity (D/E) Ratio:
The D/E ratio helps investors understand the level of financial leverage a company is using. A high D/E ratio may suggest that a company is taking on a lot of debt to finance its operations, which could be risky if the company struggles to generate enough income to cover interest payments. On the other hand, a low D/E ratio indicates that the company is less dependent on debt, which generally lowers financial risk.

4. Return on Equity (ROE):
ROE measures how efficiently a company generates profit from shareholders' equity. A higher ROE suggests that the company is using its equity base effectively to generate profits. It is a key indicator of profitability and efficiency and is often used to compare companies in the same industry. It’s important to note that an extremely high ROE might be a red flag, indicating that the company has taken on excessive debt.

5. Current Ratio:
The current ratio assesses a company's short-term liquidity by comparing its current assets to its current liabilities. A current ratio of more than 1 means that the company has enough assets to cover its short-term obligations. This ratio is crucial for determining a company's ability to meet its financial commitments in the near future, making it an important tool for risk-averse investors.

6. Earnings Per Share (EPS):
EPS represents the portion of a company's profit allocated to each outstanding share of common stock. It’s a direct indicator of a company's profitability and is widely used by investors to gauge financial health. Companies with a growing EPS are typically seen as better investment opportunities, as it indicates they are increasing profits and returning value to shareholders.

Understanding these six ratios can help you become a more informed investor. These are vital tools in stock market analysis, whether you're investing in the Indian stock market or globally. With this knowledge, you can make more strategic decisions and build a stronger, more resilient investment portfolio. Don’t forget to subscribe for more tips on becoming a successful investor!

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