Four Fundamental Tests Every Stock Investor Should Use
Fundamental analysis is a sensible, valuable and sound system for comparing companies and for narrowing down the list of strong candidates.
But the problem for every investor remains: Out of the range of possible indicators, which fundamental tests should you use? More to the point, how do you know you are getting an accurate picture based on the indicators you rely on to pick value investments?
In this article
- Revenue and Earnings
- Price-Earnings Ratio (P/E)
- Dividends per Share
- Debt Ratio Trend
- Putting It All Together
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Everyone has a short list of their favorite indicators. However, there are four that virtually everyone needs; for some, a list of favorite indicators does not provide the full story of a company’s financial strength or working capital trends. These four essential indicators not only make comparisons between companies easier and more revealing, they also help you study the company’s recent history of results and judge operations and working capital to ensure that the company you put on your short list belongs there.
The four tests work together to avoid a common problem: focusing on one or two important tests while deeper and perhaps growing problems go unnoticed.
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