How do you evaluate a stock Essay Example | Topics and Well Written Essays - 500 words

How do you evaluate a stock - look for ExampleThe P/E ratios are compared only in organizations within the same market or industry. The price to sales ratio (PSR) should be near one. It is computed by dividing market capitalization by tax revenue of the most recent trading period. It is most suitable for analyzing stocks in the same sector.The Return on right (ROE) illustrates the returns for shareholders equity. It should distractly be more than 10%. The ratio illustrated the effectiveness of the company in generating profit per equity unit. The earnings growth should be a minimum of 10% higher than the foregoing year. This trend should be illustrated in several years. The higher the growth, the more investments returns.The debt to asset ratio illustrates that debts should be embody to or less than 50% of the assets. This ensures appropriate levels of leverage across several companies. The greater the ratio, the leverage arcdegree is higher hence results to financial risks.T he returns on assets for Wal-Mart and Costco in the trading period ended 2014 are 7.86% and 6.50% respectively. The mathematical process of Wal-Mart is thus higher due to the greater returns on assets. The returns on equity for Wal-Mart in 2014 are 21%, and that for Costco in the same period is 17.79%, thus Wal-Mart illustrates the most appropriate value.Risk identification is very classic in ensuring higher investment returns. The investors and fund managers usually quantify the forecasted losses of the stock investments and then larn appropriate actions in relation to risk tolerance and also investment approaches. The risk assessment involves the domain of several factors in relation to growth, profitability, low valuation, and the fiscal strength. A stock possessing all the illustrated characteristics is the most appropriate for investments (Horcher 3).The risk management techniques ensure successful stock trading. The trading profits can be safeguarded through simple strateg ies like trade planning, take-profit points,