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Fundamental analysis of the company and its stock is very important for traders and investors who have long-term profit from that stock. With the increased popularity of online trading, stock traders now have access to a whole range of fundamental analysis tools and ratios. Even though traders follow different trading/investing strategies, they use two or more favourite fundamental and technical analysis indicators and indices to pick tradable stocks.

Here are some important and favourite fundamental analysis ratios for good stock picking.

1. Book Value per Share: Book value per share is the ratio, which is calculated by subtracting a company’s total liabilities from its total quality value and then dividing it by the total number of equity shares. Book value shows the worthiness of a company stock. The stock becomes good for trading when they drop below their book value.

2. Reserves and Ploughback: Reserve of a company is the accumulating profit of the company; and ploughback is the profit a company has after each expenses (including paying off dividends) to add to its reserve. Most growth companies are characterized by their high reserve and high ploughback. Most huge and established companies spend most of their profit in paying off dividends.

3. Earnings per Share (EPS): Earnings per share ratio is derived by dividing the total profit after tax by the total number of company shares issued. This ratio is simple to find; and is extensively used by traders/investors who follow growth and value investment strategies.

4. Price to Earning (P/E) ratio: One another extensively used ratio of stock picking. Price to earning ratio gives the relationship between the current market price of a stock and its Earning per Share (EPS) ratio. Good stocks are picked by comparing P/E ratio of a stock with others in same industry or with market average.

5. Dividend Yield: Many long-term traders want to invest in stocks which yield them good dividends over time. Although, most growing companies pay small dividends in their growth phase, they tend to offer good dividends later.

6. Price/Earning to Growth (PEG) ratio: Many growth traders look for PEG ratio of stocks. Price/Earning to Growth is the comparison of a companies P/E ratio with its expected growth. This ratio gives the key information that whether the stock is over price, under priced or fully priced.

The examination of key ratios and viewing the performance of a certain company is one of the many ways in which an investor can decide to invest in stocks. This form of investment is known as fundamental analysis.

A easy description of fundamental analysis would be, the determination of how much money a company is making from this deciding how much earnings can be expected in the future. A good way of predicting future earnings is look at the past performance of the company.

Earnings are reported by companies usually on a quarterly or annual basis and from these figures the expected growth levels of the company can be predicted. The value of the company on the stock market is to a massive degree set by how well the company is performing.

There is a massive variety of ways of determining a company’s earnings. Information on earnings can come from financial statements provided by the company. The financial statement which is required to be provided by all publicly traded companies, and in the statement is included a equilibrise sheet, auditor’s report, statement of cash flow, description of business activities and the expected revenue for the financial period.

The information provided in the financial statement makes it doable for fundamental analysis to reveal information on the value of the company, its competitive advantage, and the ratio of management to outside investor’s ownership.

Fundamental analysis applies a variety of tools to the financial data in order to extract important information on the company. For instance the earnings per share can be found out. This is a very useful piece of information to any investor and is far more useful to know than, for example, total company profits. Even though the earnings per share is a good way of comparing the performance of two companies in the same industry it should not be used as a deciding bourgeois when choosing what shares to invest in.

The price to earnings ratio (P/E) shows the relationship between the stock price and company earnings. If a company has a high P/E then it is doable that the company is overpriced, it could also mean however that the company is expected to continue to grow and yield more profit. A low P/E might indicate that investors are sceptical about the company’s future performance, however it could also indicate that most investors have unsuccessful to see the opportunity that the company holds.

Other ways fundamental analysis can be used through its capability to discover the price to income ratio for companies with no earnings, or the price to book value for investors who are interested in long term investments. Another indicator of whether or not an company is a good investment is its dividend yield. This is the percentage return a company pays in the form of dividends.