There are many ratios you can use to assess the quality of a stock. Photo: Getty
The single biggest trick to picking the right stocks is doing so when they’re trading at a discount to the sum total of their worth based on earnings, dividends, equity and debt – aka intrinsic value (IV).
Admittedly, avoiding paying too much for a stock is easier said than done. After all, unlike brokers and fund managers, you don’t have the resources to analyse companies across key criteria like growth, value, quality and timing.
Nevertheless, by understanding a handful of financial ratios and other key indicators, Romano Sala Tenna – co-investment manager of ASX-listed Katana Capital Limited – claims you can majorly improve your ability to buy the right stocks at the right price.
While no single piece of data should be looked in isolation, here’s a handful of criteria to give you a much better snapshot of any stock’s overall health. First the financial ratios.
It’s important to overlay key financial ratios, Mr Sala Tenna adds, with some important measures of growth and value, and digging around in the annual report can provide valuable insights into: