Answer to Question #5940 in Finance for LaMarcus Streeter

Question

Assume you are deciding whether or not to invest in a particular company. Discuss which elements of which financial statements you would want to carefully examine. Explain your rationale.

Answer 1

- Price / Book Value Ratio (Stock Price per Share/Shareholders’ Equity per Share) – comparing the market value, or what we are paying for each share, to a conservative measure of the value of the firm. Book value of a company is the value of a company's assets expressed on the balance sheet. It is the difference between the balance sheet assets and balance sheet liabilities and is an estimation of the value if it were to be liquidated (

- Price / Earnings Ratio (P/E) (Stock Price per Share / Earnings per Share) – what earnings to expect investing in company.

- Dividend Yield (Annual Dividend per Share / Stock Price per Share) – annual percentage of investment.