Understanding dividend payout ratio

the dividend payout ratio measures the percentage of net income that is distributed to
shareholders in the form of dividends.

Understanding the P/E ratio

The Price Earnings Ratio (P/E Ratio) is the relationship between a company’s stock price and
earnings per share (EPS). It is a popular ratio that gives investors a better sense of the value of
the company. The P/E ratio shows the expectations of the market and is the price you must
pay per unit of current earnings (or future earnings, as the case may be).

Earnings are important when valuing a company’s stock because investors want to know how
profitable a company is and how profitable it will be in the future. Furthermore, if the
company doesn’t grow and the current level of earnings remains constant, the P/E can be
interpreted as the number of years it will take for the company to pay back the amount paid
for each share.

Understanding Altman Z score

This Ratio guides us about Financial condition of company, that whether it can pay back the
debt it has or does it have any chances of filing bankruptcy.

Score below 1.1 - Company is near Bankruptcy

Score between 1.1 – 2.6 - Grey area chances are there of improving or even
downgrading

Score above 2.6 - Condition is good (Green Signal)

Understanding Ben Graham Value/Number

The Graham number is a figure that measures a stock's fundamental value by taking into
account the company's earnings per share and book value per share. The Graham number is
the upper bound of the price range that a defensive investor should pay for the stock.
According to the theory, any stock price below the Graham number is considered
undervalued, and thus worth investing in.

The formula is as follows:

√22.5 ∗ (𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒) ∗ (𝐵𝑜𝑜𝑘 𝑉𝑎𝑙𝑢𝑒 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒)

Understanding the ROE

Return on Equity (ROE) is a measure of a company’s annual return (net income) divided by
the value of its total shareholders’ equity. ROE may also provide insight into how the
company management is using the financing from equity to grow the business

A sustainable and increasing ROE over time can mean a company is good at generating
shareholder value because it knows how to reinvest its earnings wisely, so as to increase
productivity and profits. In contrast, a declining ROE can mean that management is making
poor decisions on reinvesting capital in unproductive assets.

UNDERSTANDING THE ROA

The ROA formula is an important ratio in analysing a company’s profitability. The ratio is
typically used when comparing a company’s performance between periods, or when
comparing two different companies of similar size and industry.