What are the key financial ratios used in stock market analysis?

There are several key financial ratios used in stock market analysis that help investors evaluate the financial health and performance of a company. These ratios provide insights into various aspects of a company's operations, profitability, liquidity, and overall value. Some of the key financial ratios used in stock market analysis include:

1. Price-to-Earnings Ratio (P/E Ratio): This ratio compares a company's stock price to its earnings per share (EPS). It helps investors assess the valuation of a company's stock and determine if it is overvalued or undervalued. A higher P/E ratio indicates that investors are willing to pay more for each dollar of earnings, suggesting higher growth expectations.

2. Price-to-Sales Ratio (P/S Ratio): The P/S ratio compares a company's stock price to its revenue per share. It is useful for evaluating companies that have negative or volatile earnings. A lower P/S ratio may indicate a potentially undervalued stock, while a higher ratio may suggest an overvalued stock.

3. Return on Equity (ROE): ROE measures a company's profitability by comparing its net income to shareholders' equity. It indicates how effectively a company is utilizing its equity to generate profits. A higher ROE suggests better profitability and efficient use of shareholders' investments.

4. Debt-to-Equity Ratio: This ratio compares a company's total debt to its shareholders' equity. It helps assess a company's financial leverage and risk. A higher debt-to-equity ratio indicates higher financial risk, as the company relies more on debt financing. A lower ratio suggests a more conservative capital structure.

5. Current Ratio: The current ratio measures a company's ability to meet its short-term obligations. It compares a company's current assets to its current liabilities. A ratio above 1 indicates that a company has sufficient current assets to cover its short-term liabilities. A lower ratio may suggest liquidity issues.

6. Dividend Yield: Dividend yield is the ratio of a company's annual dividend per share to its stock price. It indicates the return on investment from dividends. A higher dividend yield may be attractive to income-seeking investors, while a lower yield may indicate a growth-oriented company.

7. Earnings per Share (EPS): EPS measures a company's profitability by dividing its net income by the number of outstanding shares. It helps investors assess a company's profitability on a per-share basis. Higher EPS indicates higher profitability.

8. Return on Assets (ROA): ROA measures a company's efficiency in generating profits from its assets. It compares a company's net income to its total assets. A higher ROA suggests better asset utilization and efficiency.

These financial ratios provide valuable insights into a company's financial performance, profitability, valuation, and risk. However, it is important to consider these ratios in conjunction with other factors and industry benchmarks to make informed investment decisions.