Please provide a basic list of parameters (ratios and the "incalculables") that one should check before...

Please provide a basic list of parameters (ratios and the "incalculables") that one should check before buying the shares of a company.

Expert Solution

There are various key financial ratios that should be checked before buying the shares of a particular company.

The dividend yield is an important ratio which depicts the amount of income that investors would receive for each dollar invested. The price earnings ratio is another important ratio which compares the price that investors are willing to pay for each dollar worth of earnings. High price earnings ratio indicates that the market expects the future earnings to grow much faster. The gearing ratio should also be considered which reflects the extent to which a company is burdened with debt. Profitability ratios such as gross margin also be considered to judge the amount of profits that the company is making. Earning per share is the key ratio which shows the profit that the company has made per share. Liquidity ratios such as current ratio and quick ratio are also useful in understanding the extent to which the company can cover it short term liabilities

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