11 Best Fundamental Analysis Indicators Every Investor Must Know

Best Fundamental Analysis Indicators

Ever feel like you're swimming in a sea of stock market jargon? You're not alone. But here's the kicker: mastering fundamental analysis indicators can be your lifeboat. These are the compass points that guide you through the choppy waters of stock investing.

  • Discover the 11 must-know fundamental analysis indicators
    • Price-to-Earnings Ratio (P/E): Market price per share / Earnings per share.
    • Debt-to-Equity Ratio (D/E): Total debt / Total equity.
    • Return on Equity (ROE): Net income / Shareholder's equity.
    • Earnings Per Share (EPS): Net income / Number of outstanding shares.
    • Price-to-Book Ratio (P/B): Market price per share / Book value per share.
    • Dividend Yield: Annual dividends per share / Price per share.
    • Current Ratio: Current assets / Current liabilities.
    • Price-to-Sales Ratio (P/S): Market capitalization / Total sales.
    • Operating Margin: Operating income / Net sales.
    • Free Cash Flow (FCF): Operating cash flow – Capital expenditures.
    • Quick Ratio: (Cash + Marketable securities + Accounts receivable) / Current liabilities.
  • Learn actionable tips to apply these indicators like a pro
  • Find out how Wisesheets can be your secret weapon

P.S., Have you heard of Wisesheets? It's this nifty Excel and Google Sheets add-on that puts all these indicators at your fingertips. Financials, key metrics, live price data—you name it, all real-time data on a single spreadsheet.

#1. Price-to-Earnings Ratio (P/E)

Let's kick things off with the Price-to-Earnings Ratio, commonly known as P/E. This is the Wall Street darling, the indicator that even your grandma might have heard of. Why? Because it's straightforward and packs a punch. The P/E ratio tells you how much investors are willing to pay for $1 of a company's earnings.

Here's the formula: P/E = Stock Price / Earnings Per Share (EPS)

  • Why It Matters: A high P/E often suggests that the market has high hopes for a company's future growth. A low P/E could mean the market is undervaluing the company's stock—or that the company is in trouble.
  • How to Use It: Compare the P/E ratios of companies within the same industry to get a sense of what's considered "normal."
  • Pro Tip: Don't rely solely on P/E. It's just one piece of the puzzle.

Let's say Company has a stock price of $50 and an EPS of $5. Using the formula, P/E = $50 / $5, we get a P/E ratio of 10. This means investors are willing to pay 10 times the earnings for each share, which could be considered reasonable or high depending on industry standards.

How to Find Price to Earnings Ratio using Wisesheets?

You can swiftly determine historical PE ratios using Wisesheets. Utilize the WISE function in this format: =WISE("ticker", "PE", "period"), substituting "ticker" with the stock symbol, and "period" with the specific year or range.

Get the Historical PE for 1 Year

For instance, =WISE("AAPL", "PE ratio", 2022) fetches the PE ratio for Apple in 2022. Additionally, you can retrieve data for multiple years, like =WISE("AAPL", "PE ratio ", {2022, 2021, 2020}).

Wisesheets also enables comparison of historical PE ratios across different stocks via its custom screener feature, making it a handy tool for this task.

PE ratio screener

#2. Debt-to-Equity Ratio (D/E)

Next on our list is the Debt-to-Equity Ratio, or D/E for short. Think of this as the financial health check-up every investor should perform. The D/E ratio measures how much debt a company has compared to its equity. In simpler terms, it tells you if a company is playing it too risky or if it's financially stable.

Here's the formula: D/E = Total Debt / Total Equity

  • Why It Matters: A high D/E ratio can signal that a company is over-leveraged, which could make it vulnerable during economic downturns. On the flip side, a low D/E ratio may indicate a more stable financial position.
  • How to Use It: Use D/E in conjunction with other metrics to assess a company's risk profile.
  • Pro Tip: Industry norms vary, so always compare D/E ratios within the same sector.

Let's say Company has a total debt of $500,000 and total equity of $1,000,000. Using the formula, D/E = $500,000 / $1,000,000, we get a D/E ratio of 0.5. This suggests that Company A is relatively stable and not overly reliant on debt.

How Wisesheets Helps You in Finding Debt-to-Equity Ratio (D/E)?

Securing the Debt to Equity (D/E) ratio of any company straight into your Excel or Google Sheets is a breeze with Wisesheets. You just need to employ the formula =WISE("ticker", "Debt To Equity", period). Replace "ticker" with the stock symbol of the firm you're eyeballing, and "period" with the fiscal year you're keen on exploring.

Automatic debt-to-equity calculation

For instance, if you're on the hunt for Apple's debt to equity ratio for the fiscal year 2022, simply type in =WISE("aapl", "Debt To Equity", 2022). Voila! You'll have the ratio delivered right to your spreadsheet, making it a seamless process to keep tabs on a company's financial stance.

#3. Return on Equity (ROE)

Alright, let's move on to Return on Equity, or ROE. This is the MVP of fundamental and technical analysis indicators. Why? Because ROE gives you a snapshot of how effectively a company is using its equity to generate profits. It's the ultimate measure of bang for your buck.

Here's the formula: ROE = Net Income / Shareholder's Equity

  • Why It Matters: A high ROE means the company is generating a good return on the money invested in it. That's a sign of a well-run business model.
  • How to Use It: Look for companies with consistently high ROE over several years. It's a good indicator of sustainable projected earnings growth.
  • Pro Tip: ROE can be inflated by debt, so always cross-reference it with the D/E ratio.

Imagine Company has a net income of $10 million and shareholder's equity of $50 million. Using the formula, ROE = $10,000,000 / $50,000,000, we get an ROE of 0.2 or 20%. This suggests that Company K is effectively using its equity to generate a 20% return, making it an attractive investment option.

How Wisesheets Makes it Happen?

You need to employ the formula =WISE("ticker", "roe", period). Replace "ticker" with the stock symbol of the firm you're eyeballing, and "period" with the fiscal year you're keen on exploring.

For instance, if you're on the hunt for Apple's roe for the fiscal year 2023 simply type in =WISE("aapl", "roe", 2023).

roe excel/google sheets

By following this roadmap, you'll efficiently derive the Return on Equity, shedding light on how effectively a company is deploying its equity to churn out profit.

#4. Earnings Per Share (EPS)

Let's talk Earnings Per Share, or EPS. This is the intrinsic value indicator that makes headlines. This fundamental analysis indicator tells you how much profit a company is making per share of its stock. It's the number that analysts obsess over and investors cheer for.

Here's the formula: EPS = Company's Net Income / Number of Outstanding Shares

  • Why It Matters: A rising EPS often signals a company's growing profitability, which can lead to a higher stock price.
  • How to Use It: Track EPS over multiple quarters to spot trends. A consistently rising EPS is usually a good sign.
  • Pro Tip: EPS can be manipulated through stock buybacks, so don't use it in isolation.

Imagine Company reports a net income of $2 million and has 1 million outstanding shares. Using the formula, EPS = $2,000,000 / 1,000,000, we get an EPS of $2. This could attract value investors if it shows an upward trend compared to previous quarters.

Let's Find Earnings Per Share (EPS) with Wisesheets

Wisesheets simplifies the process of finding EPS by allowing you to pull the necessary financial data directly into your spreadsheet. Here’s how to do it:

  1. Open Your Spreadsheet: Start by opening Excel or Google Sheets where you have the Wisesheets add-on installed.
  2. Input the Function: Use the WISE function to fetch the EPS of a company. The format of the function is simple and straightforward:=WISE("Ticker Symbol", "EPS", "Period")Replace "Ticker Symbol" with the stock symbol of the company you are analyzing, and "Period" with the fiscal year or quarter you're interested in.
  3. Example: If you want to find the EPS of Apple for the fiscal year 2022, your function would look like this:=WISE("AAPL", "EPS", 2022)This function call will retrieve Apple’s EPS for 2022 directly into your spreadsheet.
    EPS with Wisesheets
  4. Comparative Analysis: You can also compare the EPS of different companies or analyze the EPS trend of a single company over multiple years. For instance:=WISE("AAPL", "EPS", {2022, 2021, 2020})This command will give you Apple’s EPS for the last three fiscal years, making it easy to observe trends over time.

#5. Price-to-Book Ratio (P/B)

Next up is the Price-to-Book Ratio, or P/B. This one's a bit of an unsung hero. P/B compares a company's market value to its book value, helping you understand how much you're paying for what the company is actually worth.

Here's the formula: P/B = Market Price per Share / Book Value per Share

  • Why It Matters: A low P/B may indicate that the stock is undervalued, while a high P/B could mean it's overvalued.
  • How to Use It: Like P/E, it's best to compare P/B ratios within the same industry.
  • Pro Tip: A P/B under 1 could be a bargain buy, but always dig deeper.

Let's say Company has a market price per share of $50 and a book value per share of $25. Using the formula, P/B = $50 / $25, we get a P/B ratio of 2. This suggests you're paying twice the book value for each share, which might be reasonable or high depending on industry norms.

Automated Price-to-Book Ratio (P/B) ratio with Wisesheets

You can effortlessly determine historical P/B ratios using Wisesheets. Utilize the WISE function in this format: =WISE("ticker", "PB", "period"), substituting "ticker" with the stock symbol, and "period" with the specific year or range.

pb ratio excel/google sheets

For example, to fetch the P/B ratio for Apple in 2022, you would input: =WISE("AAPL", "PB", 2022). This function call will provide you with Apple's P/B ratio for the specified year directly in your spreadsheet.

#6. Dividend Yield

Let's shift gears and talk about Dividend Yield ratio. This is the bread and butter for income-focused investors. Dividend Yield ratio tells you the annual dividend payment you'll receive from a stock as a percentage of its current price.

Here's the formula: Dividend Yield = Annual Dividends per Share / Price per Share

  • Why It Matters: A higher Dividend Yield ratio can provide a steady income stream.
  • How to Use It: Look for companies with a consistent history of paying dividends.
  • Pro Tip: A very high yield could be a red flag; the company might be in trouble.

If Company D pays an annual dividend of $4 per share and the stock is currently priced at $100, the Dividend Yield ratio would be $4 / $100 = 0.04 or 4%. This means you'd earn a 4% return on your investment through dividends alone.

Real-Time Dividend Yield Calculation Using Wisesheets:

You can effortlessly determine real-time dividend yields using Wisesheets. Utilize the WISE function in this format: =WISE("ticker", "Dividend Yield", "TTM"), substituting "ticker" with the stock symbol.

dividend yield excel/google sheets

For example, to fetch the real-time dividend yield for Apple, you would input: =WISE("AAPL", "Dividend Yield", "TTM"). This function call will provide you with Apple's current dividend yield based on the latest trailing twelve months' data directly in your spreadsheet.

Furthermore, to compare dividend yields across different stocks in real-time, Wisesheets enables you to do so efficiently, making it a valuable tool for income-focused investment analysis.

#7. Current Ratio

Next, let's delve into the Current Ratio. This is your go-to indicator for assessing a company's short-term liquidity. In layman's terms, it tells you if a company can pay off its short-term debts.

Here's the formula: Current Ratio = Current Assets / Current Liabilities

  • Why It Matters: A Current Ratio above 1 indicates the company can cover its short-term obligations.
  • How to Use It: Use this ratio to screen for companies that are financially stable in the short term.
  • Pro Tip: A very high Current Ratio isn't always good; it might mean the company isn't using its assets efficiently.

Suppose Company has current assets of $200,000 and current liabilities of $100,000. The Current Ratio would be $200,000 / $100,000 = 2. This suggests that Company E is in a good position to pay off its short-term debts.

Automated Current Ratio

You can easily determine the current ratio for any company using Wisesheets. Utilize the WISE function in this format: =WISE("ticker", "Current Ratio", "TTM"), substituting "ticker" with the stock symbol.

For instance, to find out the current ratio for Apple, you would enter: =WISE("AAPL", "Current Ratio", "TTM"). This function will provide you with Apple's current ratio based on the most recent trailing twelve months' data directly in your spreadsheet.

current ratio excel/google sheets

This capability allows for a quick assessment of a company's short-term liquidity and financial health, making Wisesheets a practical tool for financial analysis and decision-making.

#8. Price-to-Sales Ratio (P/S)

Alright, let's dive into the Price-to-Sales Ratio, or P/S. This is your under-the-radar indicator that often gets overshadowed by its flashier cousins like P/E. But don't underestimate it. P/S gives you an idea of how much you're paying for each dollar of a company's sales.

Here's the formula: P/S = Company's Market Capitalization / Total Sales

  • Why It Matters: A low P/S ratio could mean the stock is undervalued, while a high P/S might indicate overvaluation.
  • How to Use It: Use P/S to compare companies in the same industry, especially when past or future earnings growth is negative and P/E can't be calculated.
  • Pro Tip: P/S is less manipulable than other ratios, making it a more reliable indicator.

If Company has a market capitalization of $1 billion and total sales of $200 million, the P/S ratio would be $1,000,000,000 / $200,000,000 = 5. This suggests you're paying 5 times the sales for each share.

Automated Price To Sales Ratio

You can easily calculate the Price to Sales (P/S) ratio for any company using Wisesheets. Utilize the WISE function in this format: =WISE("ticker", "P/S", "TTM"), replacing "ticker" with the stock symbol.

For example, to find the P/S ratio for Apple, input: =WISE("AAPL", "P/S", "TTM"). This function call will provide you with Apple's current Price to Sales ratio based on the latest trailing twelve months' data directly in your spreadsheet.

price to sales ratio excel/google sheets

This functionality in Wisesheets allows for a swift and efficient way to evaluate a company's valuation in terms of sales, making it an invaluable asset for in-depth market analysis.

#9. Operating Margin

Time to talk Operating Margin. This is the indicator that pulls back the curtain on a company's profitability from its core business operations. It's a percentage that tells you how much of each dollar earned is actually turned into operating profit.

Here's the formula: Operating Margin = Operating Income / Net Sales

  • Why It Matters: A higher Operating Margin indicates a more profitable and efficient company.
  • How to Use It: Compare Operating Margins across companies in the same industry to gauge efficiency.
  • Pro Tip: A fluctuating Operating Margin could signal inconsistent management or volatile costs.

Let's say Company has an operating income of $300,000 and net sales of $1,000,000. Using the formula, Operating Margin = $300,000 / $1,000,000, we get an Operating Margin of 0.3 or 30%. This means 30 cents of every dollar earned is operating profit.

Automated Operating Margin

You can effortlessly calculate the Operating Margin for any company using Wisesheets. Utilize the WISE function in this format: =WISE("ticker", "Operating Margin", "TTM"), substituting "ticker" with the stock symbol.

operating income ratio excel/google sheets

For example, to obtain the Operating Margin for Apple, you would input: =WISE("AAPL", "Operating Margin", "TTM"). This command will provide you with Apple's Operating Margin based on the most recent trailing twelve months' data, directly within your spreadsheet.

This ability to quickly access Operating Margin statistics with Wisesheets streamlines financial analyses, offering an efficient way to gauge a company's operational efficiency and profitability.

#10. Free Cash Flow (FCF)

Let's get into Free Cash Flow, or FCF. This is the cash cow of financial indicators. FCF tells you how much cash a company generates after accounting for capital expenditures. It's the money left over for investors.

Here's the formula: FCF = Operating Cash Flow – Capital Expenditures

  • Why It Matters: Positive FCF indicates a company has the financial flexibility to invest in growth or return money to shareholders.
  • How to Use It: Look for companies with consistently positive FCF.
  • Pro Tip: Negative FCF isn't always bad; the company might be investing heavily in growth.

If Company has an operating cash flow of $500,000 and capital expenditures of $200,000, the FCF would be $500,000 – $200,000 = $300,000. This suggests the company has healthy cash reserves.

Automated Free Cash Flow (FCF)

You can easily determine the Free Cash Flow (FCF) for any company using Wisesheets. Use the WISE function in this format: =WISE("ticker", "Free Cash Flow", "TTM"), replacing "ticker" with the stock symbol.

free cash flow excel/google sheets

For instance, to find out the Free Cash Flow for Apple, you would enter: =WISE("AAPL", "Free Cash Flow", "TTM"). This function call will provide you with Apple's Free Cash Flow based on the latest trailing twelve months' data directly in your spreadsheet.

Utilizing Wisesheets for this purpose offers a quick and effective way to analyze a company's financial health, specifically its ability to generate cash, which is crucial for operations, expansions, dividends, and debt repayment.

#11. Quick Ratio

Next up, the Quick Ratio. Think of this as the Current Ratio's more conservative sibling. It measures a company's ability to meet its short-term obligations using its most liquid assets.

Here's the formula: Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

  • Why It Matters: A Quick Ratio above 1 is generally considered good, indicating the company can cover its short-term debts.
  • How to Use It: Use this ratio to screen for companies that are financially stable in the short term.
  • Pro Tip: A low Quick Ratio could be a red flag for potential liquidity issues.

Suppose Company has $50,000 in cash, $20,000 in marketable securities, $30,000 in accounts receivable, and $80,000 in current liabilities. The Quick Ratio would be ($50,000 + $20,000 + $30,000) / $80,000 = 1.25, indicating good short-term financial health.

Actionable Tips to Apply These Indicators Like a Pro

So, you've got the lowdown on these essential fundamental analysis indicators. But knowing is only half the battle. Let's talk about how to apply this knowledge like a Wall Street pro.

  • Start with a Screener: Screeners filter stocks based on your chosen criteria, like P/E ratio or Dividend Payout ratio. Use a screener to narrow down your options, then dive deeper into the financials of the remaining companies.
  • Combine Metrics for a Fuller Picture: No single metric can give you a complete view of a company's health. Use multiple metrics to cross-reference and validate your findings.
  • Keep an Eye on Trends: Trends in metrics like ROE or EPS can indicate the direction a company is headed. Track these metrics over multiple quarters or years to identify patterns. Whether the ¸stock's current market price rises or the stock price falls, understanding the underlying trends can give you valuable insights on future stock price movements.
  • Don't Ignore the Industry: Industry norms can vary widely, affecting how you interpret metrics. Always compare a company's metrics to industry averages.
  • Diversify Your Portfolio: Putting all your eggs in one basket is risky. Diversification can help mitigate that risk. Spread your investments across different sectors, asset classes, or even countries.
  • Revisit and Rebalance: Markets change, and so should your portfolio. Periodically review your portfolio to ensure it aligns with your financial goals.
  • Understand Market Cycles: Different indicators are more relevant at different stages of the market cycle. Use metrics like P/E and Dividend Yield to gauge where the market might be headed.
  • Factor in Economic Indicators: Broader economic conditions can impact individual stocks. Keep an eye on indicators like inflation rates, interest rates, and GDP growth.
  • Trust but Verify: Even the most reliable metrics can be manipulated. Always cross-reference financial metrics with qualitative data like management quality and market conditions.

How Wisesheets Elevates Your Investment Game

You've got the indicators, you've got the tips, but what's the game-changer that ties it all together? Meet Wisesheets, your ultimate investment companion.

StatementDump: Your One-Click Financial Data Extractor

Apple Cash Flow Statement
  • What It Is: StatementDump is a feature that allows you to pull comprehensive financial data from multiple sources with a single click.
  • How to Implement It: Simply navigate to the StatementDump tab within Wisesheets and click "Get Data." The feature will automatically populate your sheet with the required financial statements.
  • Example: Want to analyze Apple's income statement, balance sheet, and cash flow statement? Just select "AAPL" and hit "Get Data." Wisesheets will do the heavy lifting for you. In an instant, you'll have access to over 55 key metrics, from revenue to ROE, all neatly organized and dating back 20 years. It's like having a time machine for financial data.

Search Tickers or Companies: Your Investment Search Engine

  • What It Is: This feature enables you to search for specific tickers or companies, making it easier to find investment opportunities.
  • How to Implement It: Use the search bar within Wisesheets to type in the ticker symbol or company name. A list of matching results will appear.
  • Example: Looking for Tesla? Type "TSLA" or "Tesla" in the search bar, and Wisesheets will show you all the relevant data, including international stocks if applicable.

WiseScreener: Your Customizable Stock Filter

Screener Excel and Google Sheets
  • What It Is: WiseScreener allows you to set specific criteria to filter stocks, such as a particular P/E range or dividend yield.
  • How to Implement It: Enter your criteria in the "Ticker Range" and "Parameter Range" fields, then click "Get Data."
  • Example: Want stocks with a P/E ratio between 10 and 20? Set these parameters in WiseScreener and hit "Get Data" to get a curated list.

WiseFunction: The Swiss Army Knife of Stock Metrics

Stocks segment revenues Excel
  • What It Is: WiseFunction is a versatile feature that lets you pull specific metrics for a stock or a range of stocks.
  • How to Implement It: Use the =WISE() function in your sheet. The function accepts parameters like symbol, metric, period, and more.
  • Example: To get Apple's segment revenue for 2020, you'd use =WISE("APPL","Segment Revenue",2020,").

WisePriceFunction: Real-Time Price Data, Your Way

Live stock price data Google Sheets
  • What It Is: WisePriceFunction allows you to retrieve real-time current stock price based on your specified parameters.
  • How to Implement It: Use the =WISEPRICE() function, specifying the stock symbol and the price parameter.
  • Example: To get Tesla's current price, you'd use =WISEPRICE("TSLA","Price").

WiseFundsFunction: Your Go-To for Fund Metrics

ETF fund data Excel
  • What It Is: WiseFundsFunction is designed to pull specific metrics for mutual funds or ETFs.
  • How to Implement It: Use the =WISEFUNDS() function, specifying the fund symbol and the parameter you're interested in.
  • Example: To find out the expense ratio of the SPY ETF, you'd use =WISEFUNDS("SPY","Expense Ratio").

Elevate Your Investing Game with Wisesheets

You've just navigated the labyrinth of fundamental analysis indicators and emerged victorious. Feel accomplished? You should. You're now armed with actionable tips and a deeper understanding of how to make smarter investment choices.

Key Takeaways

  • Understanding fundamental analysis indicators is crucial for smart investing.
  • Wisesheets offers a one-stop-shop for all your key metrics.
  • Actionable tips can help you apply these indicators like a pro.

And let's not forget the ace up your sleeve—Wisesheets. With features like StatementDump and WiseScreener, you're not just investing; you're investing smarter. Ready to take your investment strategy to the next level? Wisesheets is the key.

Guillermo Valles

Guillermo Valles

Hello! I'm a finance enthusiast who fell in love with the world of finance at 15, devouring Warren Buffet's books and streaming Berkshire Hathaway meetings like a true fan.

I started my career in the industry at one of Canada's largest REITs, where I honed my skills analyzing deals and learning the ropes.

My passion led me to the stock market, but I quickly found myself spending more time gathering data than analyzing companies. That's when my team and I created Wisesheets, a tool designed to automate the stock data gathering process, with the ultimate goal of helping anyone quickly find good investment opportunities.

Today, I juggle improving Wisesheets and tending to my stock portfolio, which I like to think of as a garden of assets and dividends. My journey from a finance-loving teenager to a tech entrepreneur has been a thrilling ride, full of surprises and lessons.

I'm excited for what's next and look forward to sharing my passion for finance and investing with others!

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