8/5/2022 - Economy and Finance

8 financial indicators we should review before buying stock

By Roman Gutierrez

8 financial indicators we should review before buying stock

1- Price- Benefits (PER)

It is a basic and classic indicator of evaluation, people mistakenly look at it alone. In fact, it should be compared with the historical average of the same company, with the ratios of similar companies in size and sector, and the most important that would be compared with the growth rate of the company's profits (PEG).

2- Revenue growth rate

The growth of revenue is the essential basis for determining the financial expansion of a company, indicates the potential of the sector where the company operates, and it is recommended that companies with at least 2 annual growth digits in their revenue or sales.

3 Benefit Growth Rate Neto

The gains are the theoretical remuneration of the shareholder and that is what allows the increase of the property. Companies with high annual growth in their profits, and a low or reasonable (PER) are investment opportunities or undervalued actions. Attention to companies that grow only in earnings and not in revenue could mean that this percentage is the product of an aggressive cost cut or an action programme.

4- Margen EBITDA

Indicates the growth potential in a company's money or cash generation, remember that a company should grow in sales, earnings and liquidity, respectively. It is estimated to add to operational gains the accounting charges that do not mean an erogation or exit of cash (e.g. Depreciation and Amortization). It also shows the quality of the company's margin and operational management.

5 Active Performance (ROA)

This Profitability indicator shows financial efficiency in the use of the total assets of a company. While higher is the percentage best financial management has in relation to its liquid assets.

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6- Heritage Profitability (ROE)

This indicator is one of Warren Buffet investor's favorites and reflects the annual return percentage that shareholders or investors have of a company. It shows how much the invested assets of the owners of a company yields. It should be compared with similar companies in size and sector, but should also be contrasted with the annual inflation rate of the currency with which the financial statements are expressed, measure the real profitability and not just the nominal. Firms with a high degree of leverage and good utility will have better profitability for their shareholders, than the least appended. Finally, each shareholder should consider ROE versus its opportunity cost in similar risk investments.

7- Return to Dividends (Yield)

This ratio shows the annual income that will have an investor by paying cash dividends. The same is influenced by the stage in which an entity is located (growth, expansion, maturity), but is also determined by the policy of remuneration to the shareholder who has the organization. “jóvenes” companies usually do not pay money dividends and capitalize their earnings to be able to reinvest, but for an investor seeking income or income, this indicator is decisive. An investor whose goal is the maximum growth of its portfolio should avoid actions that pay high dividends because they are usually “mature” companies that grow less due to their size.

8- BETA

It is a statistical risk measure of the action and a component of the cost of the capital (CAPM), for investment in stocks quoted in Bolsa says the volatile that are in relation to the market as a whole. A conservative investor should buy beta actions smaller than 1 (defensive actions and less volatility). A moderate investor can make combinations of actions with beta near 1 which is the average market risk measured by a general index. An aggressive investor should seek to invest in beta stocks exceeding 1.5 will be the actions that more suban when the market goes up and vice versa.

These indicators appear in the main pages of financial information and scholarship, you will not have to make calculations or review financial states, only know how to interpret them. A favorable combination of most of these ratios will give you a good “performance” in medium and long-term variable yield portfolios.

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roman gutierrez

Roman Gutierrez

I help people organize their personal finances and investments. I am passionate about entrepreneurship and stock markets. I have 26 years of experience in the Professional Investment Administration. I am a Venezuelan consultant based in Buenos Aires.

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