Stock Fundamentals Cheat Sheet
The ratios from Module 5 — what each one is, how to read it, and the trap to avoid. Values below are rough orientation, not targets.
Price-to-Earnings P/E
Tells you: How much you pay for $1 of the company’s yearly profit.
Rough read: ~15–25 is typical; higher = market expects strong growth.
⚠ A negative or missing P/E means no profit. Very high P/E = priced for perfection.
PEG Ratio PEG
Tells you: P/E adjusted for growth — fixes P/E’s blind spot.
Rough read: Around 1 = fairly priced; under 1 may be a bargain.
⚠ Relies on a growth estimate, which can be wrong or optimistic.
Price-to-Book P/B
Tells you: Price vs. the company’s net assets on paper.
Rough read: Under ~1–3 often “value”; best for banks & asset-heavy firms.
⚠ Nearly useless for asset-light firms (software, brands).
Price-to-Sales P/S
Tells you: Price vs. revenue — usable when there’s no profit yet.
Rough read: Lower is cheaper; only compare within an industry.
⚠ Ignores costs — a company can have great sales and lose money.
Net Profit Margin Margin
Tells you: Cents of profit kept from each $1 of sales.
Rough read: Higher & steady/rising is better; varies hugely by industry.
⚠ Grocery ~2% can be healthy; software ~25% can be weak. Context!
Return on Equity ROE
Tells you: How well the company turns owners’ money into profit.
Rough read: ~15%+ sustained is strong.
⚠ Lots of debt can inflate ROE — always check debt alongside it.
Earnings Per Share EPS
Tells you: Profit attributable to each share.
Rough read: Look for growth over years, not one quarter.
⚠ Buybacks can raise EPS without the business improving.
Gross Margin GM
Tells you: Pricing power before overhead — a durability signal.
Rough read: Higher & stable = a stronger competitive moat.
⚠ Falling gross margin over time is an early warning sign.
Debt-to-Equity D/E
Tells you: How much it leans on debt vs. owners’ money.
Rough read: Under ~1 is conservative; over ~2 is aggressive (industry-dependent).
⚠ High debt is dangerous when profits or the economy dip.
Current Ratio CR
Tells you: Can it cover the next year’s bills?
Rough read: Above 1 = yes; ~1.5–3 is comfortable.
⚠ Below 1 can signal a cash crunch; way above 3 can mean idle cash.
Interest Coverage ICR
Tells you: How easily profits cover interest on its debt.
Rough read: Higher is safer; under ~1.5–2 is a red flag.
⚠ A low number means debt payments could sink it in a downturn.
Free Cash Flow FCF
Tells you: Real cash left over after running & maintaining the business.
Rough read: Positive & growing is excellent; it’s harder to fake than earnings.
⚠ A company can report “profit” yet burn cash — FCF catches it.
Dividend Yield Yield
Tells you: Annual cash return from dividends alone.
Rough read: ~1.5–4% is common for payers.
⚠ An unusually high yield (8%+) often signals trouble, not a gift.
Payout Ratio Payout
Tells you: Share of profit paid out — is the dividend sustainable?
Rough read: Under ~60% leaves room to grow & reinvest.
⚠ Over 100% means it’s paying more than it earns — often unsustainable.
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