Sunday, October 4, 2009

Financial Ratios You should Try To Learn

This is a very good resource to learn more about ratios. If you have the basic understanding of accounting terms, you can skip right to sections 6. If you have got alot of time, paper and ink, you can download it in PDF and read in on the train, bus, or when you wife, girlfriend is doing her nails.

Does knowing the ratios guarantee wealth? No. There are many many ways to cover up the weakness of a company through creative accounting. These tricks are very often undiscernible to the untrained eye.

But if you apply the ratios sensibly with your common sense, you can reduce making bad investments. Remember in the earlier posts, Kenneth Fisher talked about using multiple ratios such as price-to-sales, price-to-book, price-to-earnings?

With the knowledge gleamed from Investopedia's short tutorial, you can look at a company with a sense of coherency. When you read the annual report sent to you, as practice, you can try to derive some of the ratios to do little analyst work.

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