Income Statement Ratios

Income statements display sales, expenses and income for a given period of time. Analysts often look at these results and compare them to the stock price of the company. For example, the price to earnings ratio compares a company’s stock price to the company’s net income per share. The ratio tells investors what the market is willing to pay for earnings. Price to sales measures what investors are willing to pay for revenues. Analysts will also forecast earnings and then extrapolate a future share price based on industry average price to earnings ratios.

Tips and Tricks

Many websites have stock screeners that allow investors to filter companies by ratio performance. Google Finance, Yahoo Finance and many other premium investment sites let users search for companies based on ratio performance using queries. Many sites allow users to save queries and test strategies. Saved queries allow investors to quickly assemble a group of stocks to compare. Another useful site is Insidercow, which tracks inside sales and purchases by company management. This is a good way to test the faith of a company’s management in the stock’s future.

Warnings

References

Resources

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