By Mehul Singh
Investors use key investing metrics to assess a company's financial performance. These indicators provide valuable insight into its profitability, valuation, and health - four metrics are worth keeping an eye out for:
1. Price-to-Earnings Ratio
The Price-to-Earnings Ratio (P/E) ratio is an often-used valuation metric in fundamental analysis, calculated by dividing a company's share price by its annual per-share earnings. For instance, a stock trading at $30 with earnings of $2 per share would have a P/E ratio of 15. This metric allows investors to easily compare companies within an industry while also identifying whether or not one stock may be over- or undervalued.
2. Price-to-Earnings-Growth (PEG) Ratio
The Price-to-Earnings-Growth (PEG) ratio goes beyond traditional P/E ratio calculations by taking into account an organization's expected earnings growth rate. It can be calculated by dividing P/E by the projected annualized earnings growth rate over several years - this allows investors to compare valuations across companies with differing growth rates; lower PEG ratios indicate stocks may be undervalued relative to their future potential growth potential.
3. Price-to-Book Ratio
The Price-to-Book (P/B) Ratio compares a company's share price with its book value (representing net assets). This metric can help make comparisons across industries easier; lower P/B ratios indicate undervaluation while higher ones suggest overpricing.
4. Debt-to-EBITDA Ratio
The debt-to-EBITDA ratio measures financial leverage by comparing total debt with earnings before interest, taxes, depreciation and amortization (EBITDA). A higher debt-to-EBITDA ratio suggests higher financial risk and may make companies more vulnerable during economic downturns; investors should keep this metric in mind when evaluating how a company manages its debt obligations.