For the valuation of shares, there are some relevant key figures that you should know. We would like to present the most important stock ratios to you here.
Stock figures provide an important basis for analyzing and comparing stocks.
It is important to consider various key figures.
A key figure that is often considered is the so-called P/E ratio, which can be used to quickly get a first impression of whether a stock is overvalued or undervalued.
Price-earnings ratio (short form: P/E ratio) is a business ratio in stock analysis and fundamental analysis, in which the stock market price of a share is compared with the earnings per share.
P/E ratio = Price per share ÷ Earnings per share
Many people use various ratios as a guide in order to avoid investing in overvalued shares, among other things. The P/E ratio can be calculated for an individual share, but also for an entire economic sector or for the entire value. In recent years, for example, the DAX has averaged a P/E ratio of 14. By way of comparison, the U.S. S&P 500 index peaked at an average of 30 last year. The lower the P/E ratio, the more favorable a stock is compared with other stocks. In most cases, shares of high-growth companies have a higher P/E ratio, e.g. between 20 and 50. Shares of low-growth companies, on the other hand, have a lower P/E ratio. This can then be between 7 and 15, for example.
Alongside the price/earnings ratio, the price/book ratio is one of the most popular ratios for valuing shares. To make the book value comparable and assessable, the book value per share must be linked to the current market price of the respective share.
P/B = Current share price ÷ Book value per share
Market capitalization reflects the current market value of a listed company. It is calculated by multiplying the current share price by the total number of shares. As a result, market capitalization is subject to constant change.
Market capitalization = share price x number of shares issued
Profit is one of the most important ratios in stock analysis. However, there are a few different ratios, here are the most common distinctions, EBITDA, EBIT and net income:
Sales - production costs
= EBITDA (Earnings before interest, taxes, depreciation and amortization)
- Depreciation and amortization (loss in value of property, plant and equipment and intangible assets)
= EBIT (Earnings before interest and taxes)
= Net income
EBITDA does not tell us anything directly about the real profit. However, it helps us to understand whether companies are profitable from pure product sales, leaving out other cost items. EBIT adjusts EBITDA for depreciation and amortization (i.e., impairment losses), which are not an expense but must be deducted from profit due to a decreased value. EBIT is also often referred to as operating profit.
The return on equity is a ratio that indicates the profitability of equity and how efficiently a company uses the available equity measured against net profit. It is a relatively simple and meaningful ratio that makes it possible to compare the profitability of different companies. Disadvantage: The high degree of information aggregation in net income prevents a detailed analysis of profitability.
Return on equity = profit ÷ equity
In addition to rising stock prices, you can also profit from dividends, which is a share of a company's profits. This share is called a dividend. The dividend yield is used as an indicator for the valuation of shares and represents the ratio of the dividend to the share price. The share price and the announced dividend are used to calculate the dividend yield. The amount of the dividend is determined at the Annual General Meeting of a stock corporation.
Dividend yield (in %) = Dividend ÷ Share price × 100
The gearing ratio has a similar statement as the equity ratio, but differs in its calculation. The same laws therefore apply here: The higher the debt-equity ratio, the riskier a company is generally to be assessed.
Debt-equity ratio = debt capital ÷ equity capital
The equity ratio shows the portion of total assets financed by equity and is expressed as a percentage.
Equity ratio = equity ÷ total capital
The higher the equity ratio, the healthier a company's balance sheet, as no large amounts of debt capital have to be repaid or refinanced. However, debt capital is not necessarily bad. In most cases, it is worthwhile for a company to maintain a certain debt ratio, as this can reduce capital costs and save taxes.
The gross margin indicates how efficiently a company uses its capital in production or development and generates profits from it. The ratio is important for comparison with other companies and also provides information on profitability. Example: A company has sales (earnings) of 100 million euros. The total costs amount to 70 million euros. The gross profit is therefore 30 million euros. Putting this in relation to the revenue gives the gross margin: 30 million euros / 100 million euros x 100 = 30%.
Gross margin = Gross revenue ÷ Sales revenue
The net margin can be used to assess the profitability of a company. The term margin refers to the relationship between two variables and is mostly used in business administration (BWL) to indicate the proportion of sales that is not required for certain costs.
Net margin = net profit ÷ sales
What are dividends? Why are they relevant for asset accumulation?
How does inflation occur? What are the causes? What can be done against inflation?
What exactly is Forex? Why is it so important?