Welcome to Investing for Beginners podcast! In today’s episode, we will talk about the five financial ratios every investor, beginner or not, should know! There’s a multitude of ratios out there and each has their own purpose but we believe that these five are the most important and should be in every investor’s arsenal in valuing a business so listen on!
Timestamps of the episode:
-The most popular metric of them all: The price to earnings ratio (P/E) [02:00]
-The limitations of using the p/e ratio and the justification it gets depending on each industries it belongs. [04:33]
-Defining the price to free cash flow ratio (P/CF) and why it is a more superior ratio than P/E. [09:27]
-How to calculate the p/e and p/cf ratios into earnings yield. [14:52]
-Now into the efficiency ratios: Return on Equity (ROE) and Return on Invested Capital (ROIC) [15:45]
-Why always looking in a longer timeframe helps visualize the impact of ratios in a business. [21:38]
-Balance sheet ratio: Debt to equity (D/E) [24:40]
-The importance of knowing the context behind the d/e numbers and how it differs across each industry average. [27:04]
-What is an interest coverage ratio and what it tells you. [31:15]
Note: Timestamps may differ and are approximate, depending on your podcast player.
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You can find the transcript of today’s show below:
