PE Ratio, Debt to Equity Ratio

 PE Ratio, Debt to Equity Ratio

PE ratio || Debt to equity ratio || Fundamental analysis  || Investment || Price to Earning Ratio || PE Ratio || Share on Earnings || Debit to Equity Ratio || Fundamental analysis. investment

 

Here are few important things you need to know for basic  fundamental analysis          in this section.  If you are thinking of investing in the stock market, then you need to know some basic things. 

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  1)  What is PE ratio?

  2) What is debit to equity ratio?

 1)  Price to Earning Ratio : Price to earning ratio : PE ratio :- 

          PE ratio  is an important factor in fundamental analysis. The first is how much the share price is compared to the earnings per share.

     The lower the PE ratio,  the more suitable the stock is for investment. 

      If the company's  PE ratio is lower than the sector P/E ratio (the average PE ratio  of other companies making similar products  ), the stock is considered suitable for investment.

       PE ratio   is obtained as follows, 

 PE ratio   = Market price of share / Earnings per share  

Before that let's see what is the earnings per share,

Share on Earning: Earning per share (EPS): -

How much profit a company earns per share  is called Earning per share  .

     Earning per share = Net profit of the company / total number of shares of the company 

For example :- ITC Ltd. The net profit of 2021 is Rs.130316800000 and the total number of shares is 12308844231.

Share on mug earning = 130316800000 / 12308844231  

                               =१०.५८७२४९१  

                               = Rs.10.59. 

      That means ITC's 2021 earnings per share is Rs 10.59.

      In 2021, the market price of ITC shares was between 200 and 256. The price of shares changes daily. Similarly, the ratio of earnings per share and price to earnings also changes.

Now    let's see the PE ratio of ITC at price 256 per share.

                                 PE ratio    = ۷۵۱ / 10.59 

                                  PE ratio   = ۷۵.۱۵

That means PE ratio of  ITC Ltd at price of 256   is 24.18.

       The market price of the share increased as compared to the net profit of the company.  So  PE ratio  increases. P/ PE ratio 

The lower it is, the better the stock is for investment. In general, a stock with a PE ratio  of around 20  is considered a good investment. 

A PE ratio above 30  is considered  a high PE ratio  and such shares are not considered for investment. 

        But not all investors think so. Some investors buy shares for a short period of time and sell the shares when the price rises slightly, thereby increasing the price of the shares. But the company's earnings do not increase compared to that, as a result the difference between price and earnings per share increases and  the PE ratio  increases.

 Some companies with high PE ratio :- MRF Ltd, Ceat Ltd,  Maruti Suzuki India Ltd.           

  Although stocks with low PE ratio are good             for investment  , there are other things to consider. Such as the company's debt, company's financial progress, company's profit margin, company's upcoming projects and goals. 

2) Debit to equity ratio: debt to equity ratio: - 

       Debt to equity ratio  is also an important factor in fundamental analysis. It compares how much debt a company has against its equity. The lower the debit to equity ratio, the more suitable the stock is for investment.

       The debit to equity ratio is obtained as,

            Debit to equity ratio = non-current liabilities  /  shareholders' equity

Mahindra & Mahindra Ltd. The non-current liability (debit) of 2022 is around 6735 . 56 crores. In this and Total Shareholders Equity 38960 . 95 crores. 

then,

                     Debit to Equity Ratio= 6735 . 56 / 38960 . 95

                                                     =०.१७२८७९

                                                     =०. १७

Means Mahindra & Mahindra's 2022 Debit to Equity Ratio is 0 . 17 is

Debit to equity ratio is 0 to 1 . If it is between 5 such shares are considered suitable for investment.

Some Companies with High Debt to Equity Ratio:-

1) Vodafone Idea Ltd. :- Vodafone Idea's 2020 Debt to Equity Ratio was 10.71. That means the company has 10 times the debt of shareholders' equity in the year 2020. Vodafone Idea's Debt to Equity Ratio in 2021 is -4.18 and in 2022 -3. 1 was  

2) Suzlon Energy Ltd. :- Debit to equity ratio of Suzlon in 2020, 2021, 2022 respectively -0. 86, was -1.11, -1.09. 

         In both the above examples, the Debt to Equity Ratio in 2021 and 2022 is in the negative even though it looks low. As the total debt of the company exceeds the assets, the equity has gone into the negative. Such shares are risky in terms of investment.

      

         

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