Question

discuss the importance of valuation ratios

Answer 1

The importance of valuation ratio are very important for analyst and investor because it will help to understand the investor to take position for entry or exit of stock price of the company and for analyst to furnish the recommendation whether to buy, sell or target price of the stock. For example, by seeing Price to earning ratio of the company and compare with the industry and peers P/E ratio we see that whether we should sell or buy the stock such as if company P/E ratio is 40 and industry P/E ratio is 25 then there is high chance that there will be correction of current stock price.PEG ratio will give us the indication that what will be future and trailing growth with respect to stock price. From Price/cash flow to see that there should be positive cash flow so as to detemine that the company position is halthy as smae with price to book value ratio. It should be positive and it should be prefer to have stock which has more than 0 to 1.