what are the ratios which an investor should calculate before investing in the company



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3 Answer(s)


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This depends on a few factors -
1) Are you investing in a public mature company or a private startup company.
2) Risk profile of the investor.

If you are investing in a public company then at a high level investors focus on profitability and free cash flow - to understand how strong the fundamentals are. They also look at revenue growth rate - to understand what is the future potential of the company. Many professional investors/fund managers dive into more detail and examine the companies financial statements to understand hidden expenses, future sales contracts, future potential of the industry, competition etc.

If you are investing in a private startup then the focus is more on the product and revenue growth. Startups are still too early to show profits.

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Some popular ratios include -
P/E
FCF/EBITDA
Quick Ratio = current assets/current liabilities

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Some are based on P/E ratio
PEG ratio
Price to sales ratio
Price to book ratio
Dividend yeild
Dividend Payout ratio.

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