Placer_foot

Hey Gang....


It's been a while since i last shared some helpful info....so....Class, we're about to begin:


6 Basic Liquidity Ratios ( you've all heard about these i'm sure on CNN/Money....now you'll know how to do them yourself!!! )


1) Working Capital Ratio - Current Assets ( divided by ) Current liabilities

...a higher number is generally good, although a ratio higher than 5:1 may indicate an unnecessary accumulation of funds or inventories.

2) Quick Ratio ( or Acid Test ) - Current Assets ( minus ) inventories ( divided ) current liabilites

...determines the company's ability to pay down debt with liquid ( cash ) assets at a moments notice.

3) P/E Ratio ( price earnings ) - Divide the CURRENT price per share by the earnings per share ( the sum of the last 4 quarters is the most accurate reflection of the current valuation )....the market average P/E ratio over the last 15 years is roughly 14....do this to EVERY stock you are targeting and compare against one another ( make sure the Companies you are comparing are in the same industry )....by doing this you will EASILY see which stock is expensive and which one is cheap

4) PEG Ratio - P/E ( divided ) by the long term growth rate. In general, you want a PEG ratio that's close to 1.0, which means it's trading in line with it's growth rate. Quality companies may be higher.

5) Book Value per Share - Divide book value by number of shares outstanding.

6) Price-to-Book Value - Divide the market price of the stock, by the book value per share.


.....Number's 1-2 measure a company's liquidity....numbers 3-6 measure a company's value.

...pretty much everyone is going to be be focused on the P/E, this i know.....but just TRY to preform any of these measures on ANY Pink Sheet or OTC BB listed stock.....guess what?......you can't!!....so in other words....if you can apply ALL 6 to a stock effectively.....you're now an educated investor.....if you can't apply ALL 6.....you're now an educated TRADER.....there is a HUGE difference.....make sure you know which one you are!!!!!

TA DA!!!!!