They look into the fundamental aspects of the company and gives an idea about:-

· The present financial status of the company

· The rank of company ranks among its peers and whether the market has priced the stock properly as seen in the price of the stock.

· Whether a particular company is worth investing in.

As the ratios look into companies from a fundamental point of view it is also known as fundamental analysis. While a lot of investors use only fundamental analysis, others use it along with other tools to evaluate stocks for investment. The purpose is to determine the current worth of a stock and also how the market looks at the stock.

There are as many as 12 financial ratios one must understand to value a stock.

Even if one has no plan to do fundamental analysis in-depth, understanding the key ratios and terms will go a long way to closely follow the stocks.

It is sufficient to understand all ratios, relevance, meaning, and components. Most of the ratios form part of the financial statements and need not be computed. These ratios are available from financial magazines and many financial websites. Moneycontrol.com is one such website.

The following is a list of key ratios :

· EPS - Earnings per share

· P/E - Price to Earnings Ratio

· Market capitalization

· P/S - Price to Sales

· P/B - Price to Book

· Dividend Payout Ratio

· Dividend Yield

· Book value

· Return on Equity

· PEG ratio

· Interest coverage ratio

· Current and quick ratios