I’m writing this as I’m reading about Value Investing which is one strategy for picking stocks. If you want to learn more about the concept of Value Investing you should look here and here and here. The following are key ratios to look at in Value Investing. Look for consistency.

Gross Profit Margin – the more the better. Think 40% or better.

EBITDA – Don’t use it as it ignores some very important real expenses.

Interest Expense – Better off not to have any. The less the better otherwise.

Earnings – use pre-tax earnings.

Taxes Paid – make sure they make sense.

Net Earnings – are they trending upward? What percentage of total revenue is net earnings? Look for 20% or more.

Net Earnings per Share – Good way to compare apples-to-apples. Look for consistency and growth. High volatility would be bad.

Cash & Marketable Securities – a very good thing to have.

Current Ratio – Above 1 is good and below 1 is not so good.

Long Term Debt – the less the better.

Also to consider:

SGA – Selling, General and Administrative costs.

Administrative Costs – less is better.

Research Costs – Less is better. Generally.

Cost of Debt – Bad. Very bad.