Investment ratios are vital tools that can provide insights into a company's performance and financial health. They can be used to compare different Investment and to measure the risk involved with a particular Investment. There are various types of ratios, including price-earnings (P/E), current ratio, and solvency ratio. Understanding these ratios is essential for making informed Investment decisions.
VMSXX has a 0.15% expense ratio and no minimum Investment requirement. Fidelity Money Market Fund (SPRXX) is a good option for investors who favor Fidelity’s low-cost money market fund. The expense ratio for this fund is 0.25%. The minimum Investment requirement for this fund is $2,500.
According to Tadrus, the only necessary ratio is one comparing potential return on an Investment relative to the risk taken to achieve that return. This is known as the Sharpe ratio. A higher Sharpe ratio indicates a higher return at a lower risk. This ratio can be used to compare different Investment and assess their relative risk-return trade-off.
Another important Investment ratio is the cyclically adjusted price-to-earnings (CAPE) ratio. This is a long-term measure of stock market valuations. It takes into account the average earnings of a company over a ten-year period, rather than just its current earnings. A high CAPE ratio could indicate that the stock market is overvalued and a more defensive approach may be required.
The current ratio is a measure of a company’s liquidity. It is calculated by dividing the company’s current assets by its current liabilities. A current ratio higher than the industry average could indicate that the company is financially strong and may be a good Investment. A current ratio lower than the industry average could mean the company is at risk for default, and in general, is a risk Investment.
The price-earnings (P/E) ratio is another important ratio for investors to consider when evaluating a company. The P/E ratio is calculated by dividing the company’s share price by its earnings per share. A higher P/E ratio indicates that the company is undervalued, while a lower P/E ratio indicates that the company is overvalued.
Another type of ratio that investors should consider when evaluating a company is the dividend yield. This is calculated by dividing the company’s annual dividend payments by its current share price. A higher dividend yield indicates that the company is a better Investment, as it is providing a higher return to its shareholders.
The debt-to-equity ratio is another important ratio for investors to consider. This is calculated by dividing the company’s total liabilities by its total equity. A higher ratio indicates that the company is taking on more debt than it can handle and could be a risk Investment.
The return on Investment (ROI) ratio is another important ratio for investors to consider. This is calculated by dividing the company’s total return (which includes dividends, capital gains, and other forms of income) by its total Investment. A higher ROI indicates that the company is providing a higher return on its Investment.
The price-to-book (P/B) ratio is another important ratio for investors to consider. This is calculated by dividing the company’s current share price by its book value per share. A lower P/B ratio indicates that the company is undervalued and could be a good Investment.
The price-to-sales (P/S) ratio is another important ratio for investors to consider. This is calculated by dividing the company’s current share price by its sales per share. A higher P/S ratio indicates that the company is overvalued and may not be a good Investment.
The price-to-cash flow (P/CF) ratio is another important ratio for investors to consider. This is calculated by dividing the company’s current share price by its cash flow per share. A higher P/CF ratio indicates that the company is overvalued and may not be a good Investment.
The solvency ratio is another important measure for investors to consider. This is calculated by dividing the company’s total liabilities by its total assets. A lower solvency ratio indicates that the company is at risk of default and may be a risk Investment.
Investing with a better understanding of ratios will help investors make informed decisions and increase their returns. Knowing how to use these ratios can be a powerful tool for investors to maximize their returns.
