Fundamental Analysis

Technical analysis asks when to buy. Fundamental analysis asks what to buy: is this a good business, and is the price fair? These ratios and statements are where to start.

ValuationFinancial statementsRatios

Income statement

Revenue, costs and profit over a period. Start with revenue growth, gross margin and net margin.

Balance sheet

What the company owns (assets) and owes (liabilities) on one date. Check cash versus debt.

Cash flow statement

Actual cash in and out from operations, investing and financing. Profit without cash flow is a red flag.

The 10 ratios to know

Ratio	Formula	What it tells you	Rule of thumb
P/E ratio	Share price ÷ earnings per share	How many dollars investors pay for $1 of yearly profit.	Compare with the company's own history and its sector. Below ~15 is often called value; above ~30 implies high growth expectations.
Forward P/E	Share price ÷ next year's expected EPS	Valuation based on analyst forecasts instead of past results.	If forward P/E is well below trailing P/E, earnings are expected to grow.
PEG ratio	P/E ÷ annual EPS growth rate (%)	Whether a high P/E is justified by growth.	Around 1 is often seen as fair; below 1 may be cheap relative to growth.
EPS (Earnings per share)	Net income ÷ shares outstanding	Profit attributable to each share.	Look for steady growth over several years, not one good quarter.
P/B ratio	Share price ÷ book value per share	Price relative to the company's net assets.	Most useful for banks, insurers and asset-heavy firms. Below 1 can signal value or trouble.
ROE (Return on equity)	Net income ÷ shareholders' equity	How efficiently management turns shareholder money into profit.	15%+ sustained over years is strong. Check that it isn't inflated by heavy debt.
Debt-to-equity	Total debt ÷ shareholders' equity	How much the business relies on borrowing.	Below 1 is comfortable for most industries; utilities and banks run higher by design.
Current ratio	Current assets ÷ current liabilities	Ability to pay bills due within a year.	Above 1 means short-term assets cover short-term debts.
Dividend yield	Annual dividend per share ÷ share price	Cash income you receive as a percentage of the price.	A very high yield can mean the price has fallen on bad news. Check the payout ratio.
Free cash flow	Operating cash flow − capital expenditure	Cash left over to pay dividends, buy back shares or cut debt.	Harder to manipulate than earnings. Consistently positive FCF is a strong sign.

Quick quality checklist

✓Revenue and EPS have grown for at least 3–5 years.
✓Margins are stable or rising, not shrinking.
✓Debt-to-equity is reasonable for the industry, and cash covers near-term debt.
✓Free cash flow is positive and roughly tracks net income.
✓Valuation (P/E, PEG) is in line with or below peers and its own history.
✓You can explain in one sentence how the company makes money and why it will keep doing so.

Put it into practice

Use the screener to find stocks that pass a first filter, then open each company's fundamentals tab for its full statements.

Screen for low P/E and high dividend →Estimate fair value with the DCF calculator →Dividend & P/E calculator →

Educational information only, not investment advice. Market data may be delayed.

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