PE ratio means Profit Earning Ratio. Let’s check how to find out PE ratio.
Let’s imagine there are two cows in the market…both have the same price. One lac each…but one cow give only 4 liters milk while the other cow gives 8 liters milk…..so which cow will u buy? You will surely buy the cow that gives good returns right…likewise the investment that you make in a company must give you good returns…so choose wisely and buy shares of a company that will give you good returns. You can find out the returns of a company with the help of PE ratio.
PE ratio is the value that you get when you divide the current market price of the company you choose divided by Earning per share.
PE = current market price / EPS (Earning per share )
All these values are available in NSE website and also in Enrich Market hunt
Book value is similar to PE ratio…it’s a tool to know more about the company credentials.
Book value = company’s total asset – total liability
Value in a company….you should validate a company’s total asset and then buy their shares.
How to choose stocks in market ?
We can choose stocks only after analyzing the fundamental and technical progressing of the company
How can we validate a company?
In order to validate a company a company’s market capital, asset, debit, cash flow, technical analysis, competitor company should be taken into account.
There are basically two major trends in the market.
If the market is in uptrend we call it bull market and if the market is in downtrend (we call it bear market. In a bull market, there is less unemployment, excess fund in the market and is expected to sustain for at least 9 to 12 years while in a bear market there is shortage of funds, unemployment may go on for 1 to 3 years. Now you may think that bear market is a difficult time period but that’s not how it is in the market…both bear and bull are good for the market.
Based on the bear market, shares can be purchased at a low price. Now in this scenario you will be able to buy many shares. When the market turns into bull market you can sell these shares and earn a good profit.
For instance, let’s take Reliance…instead of just looking at the fact that it’s a good brand and a good company, you must analyze the company’s balance sheet and buy their shares.
In 2008, the trade price was 2200 of Reliance capital…at present the share price is just four rupees…for the last ten years the company balance sheet has been negative. So it’s very important to frequently check the balance sheet of the company before you buy their shares.