One of the many reasons that the internet has made this a golden age for investors is that investors have more access to information than they’ve ever had. The Securities & Exchange Commission (SEC) requires companies to file their financial information prior to their earnings reports. These basic documents such as a company’s income statement, balance sheet, and cash flow statements are available on a company’s web site.
Here are a few other metrics you can use to evaluate the value of a stock.
Price-to-book (P/B) ratio – This is a stock’s price divided by its equity per share. A book value of less than one suggests that a stock is trading for less than the value of the underlying company’s assets. Value investors use P/B multiples to find stocks with a margin of safety.
Return on equity (ROE) – This is a company’s annualized net income as a percentage of shareholder’s equity. ROE measures how efficiently a company uses its invested capital to generate profits.
Debt-to-equity ratio – This is a company’s total debt divided by its shareholders’ equity.
Current ratio – This is a ratio that expresses how easily a company can pay its short-term obligations. Current ratio is calculated by dividing a company’s current assets by its current liabilities.
There are also a variety of stock screening tools that automatically perform these calculations such as the ones listed above. Many of these stock screeners allow you to sort companies by specific metrics so investors can easily find companies that meet the criteria that they determine.