4 Key Ratios Every Investor Should Know - and how to use them | Summary and Q&A

TL;DR

Learn about four important ratios for investment research: price to sales, price to earnings, price to book value, and price to free cash flow.

Key Insights

• 🥳 Price to sales ratio indicates the amount investors pay for every dollar of company sales.
• 🥳 Price to earnings ratio assesses the stock price relative to the company's earnings.
• 🥳 Price to book value ratio evaluates the stock price compared to the company's net worth.
• 💐 Price to free cash flow ratio reveals the stock price relative to available cash flow after expenses.
• 🥳 Pepsi appears to have better ratios compared to Coke and the industry average.
• 🥳 Profit margins play a significant role in the difference between Pepsi and Coke's ratios.
• 🥶 Free cash flow can provide insights into a company's potential growth and future investments.

Transcript

hi in this video we're going to look at four key ratios that are great for starting the investment research process these four ratios are simple if they tell a very powerful story when combined the four ratios are price to sales price to earnings price to book value and price to free cash flow now fundamentally speaking none of these are terribly d... Read More

Questions & Answers

Q: How is price to sales ratio calculated and what does it indicate?

Price to sales ratio is calculated by dividing the stock price by the company's sales revenue. It indicates how much investors are paying for every dollar of sales generated by the company. A lower ratio suggests better value.

Q: What does price to earnings ratio measure and why is it important?

Price to earnings ratio compares the stock price to the company's earnings or profits. It is commonly used to assess the company's valuation and investor sentiment. A lower ratio may indicate an undervalued stock.

Q: What does price to book value ratio assess and how is it calculated?

Price to book value ratio evaluates the stock price relative to the company's assets and liabilities. It is calculated by dividing the stock price by the book value, which is the net worth of the company after deducting liabilities. A lower ratio suggests potential value.

Q: What does price to free cash flow ratio signify and how is it calculated?

Price to free cash flow ratio compares the stock price to the cash flow available after covering operational expenses. It is calculated by subtracting capital expenditures from cash flow from operations. A lower ratio indicates better value and the company's potential to generate cash.

Summary & Key Takeaways

• The video discusses four key ratios for investment research: price to sales, price to earnings, price to book value, and price to free cash flow.

• Price to sales ratio measures the stock price relative to the company's sales revenue.

• Price to earnings ratio compares the stock price to the company's earnings or profits.

• Price to book value ratio evaluates the stock price relative to the company's assets and liabilities.

• Price to free cash flow ratio indicates the stock price relative to the cash flow available after expenses.