Three Key Ratios For Investors

if you could only have four ratios to evaluate a company what would they be? This is a fun question that is popular in investing circles. For a laugh I’ll take my shot at it, what would you pick?

1) Current Ratio

Current Assets / Current Liabilities

Why?

This ratio keeps track of the company’s ability to pay its short term debt. If a company doesn’t have safety money to deal with debt then they might not be in business tomorrow and I don’t need any of that.

2) Dividend Yield

Annual Dividend Per Share / Price Per Share
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Buy a Company with a Future (Current Ratio) (Session 5)

Current ratio is an important one; it shows us how the company will survive in the short term. As I mentioned earlier there are reasons why the company is currently cheap our job is to figure out why and also to build in a safety margin to make sure they are going to survive the reason they are so cheap.
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Buy a Company with a Future (Book Value) (Session 3)

Book Value is a pretty easy one as compared to Price to Earnings. So let’s get into it we will need it for other calculations.

What is it?

What does it tell us?

As with price to earnings ratio imagine if you will that you are buying a company but instead of running the company you are closing it out and selling off all the equipment. To do that you have to pay off the debts of course no one is going to let you walk out the door without paying the bills.
So if you have $1,300M in current assets, Current and long term Liabilities of $600M and preferred shares of $450M. Then you have a book value of:
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