Financial ratios let you track the health of the underlying company, you can see if it is standing stronger or fading. The financial ratio helps you to compare a business to its competitors, in the extreme scene you can compare penny stocks to any massive blue-chip corporation. That will help you to find winning penny stocks.
Knowing a single value is meaningless. That same value can be bad for a company while being good for the others. Yet, once you have ratios, like the share price to sales ratio (price to sales or P/S), you can clearly see the true value of the stock, whether it is compelling or more expensive than its competitors.
However, for penny stocks, there are only several ratios work, here are those ratios.
Price to Sales (P/S)
You can calculate P/S by dividing the current share price by the company’s annual sales. Then, the result will show you if the investment overvalued or undervalued.
For instance, with a $3.50 share price and the company sales per share for the year is $1, the P/S is 3.5. Lower values are always better than the higher ones. In other words, any number close to 3.0 or less is compelling.
Current Ratio
The current ratio lets you know the company able to cover its short-term debts with its short-term assets. It can be calculated by dividing the current assets by its current liabilities.
For example, a company with current assets worth $2 million and $1 million liabilities has a 2.0 current ratio.
Ideally, investment value will be boasted at 2.0 current ratio or more. The higher will be better. In choosing penny stocks, you have to avoid the ones with a current ratio of less than or near 1.0.
Quick Ratio
Different from the current ratio that considers all assets of a company, the quick ratio only considers assets that can quickly use. It aims to see how many times the business can easily cover what it owes in short terms.
Thus, this calculation excludes things like inventories, it focuses on cash, marketable securities, accounts receivable, and stock market investment, instead. To calculate the quick ratio, divide the liquid assets by the current liabilities.
Also read: How to Start Investing in Penny Stocks
extreme scene you can compare penny stocks to any massive blue-chip corporation. That will help you to find winning penny stocks.
Knowing a single value is meaningless. That same value can be bad for a company while being good for the others. Yet, once you have ratios, like the share price to sales ratio (price to sales or P/S), you can clearly see the true value of the stock, whether it is compelling or more expensive than its competitors.
However, for penny stocks, there are only several ratios work, here are those ratios.
Price to Sales (P/S)
You can calculate P/S by dividing the current share price by the company’s annual sales. Then, the result will show you if the investment overvalued or undervalued.
For instance, with a $3.50 share price and the company sales per share for the year is $1, the P/S is 3.5. Lower values are always better than the higher ones. In other words, any number close to 3.0 or less is compelling.
Current Ratio
The current ratio lets you know the company able to cover its short-term debts with its short-term assets. It can be calculated by dividing the current assets by its current liabilities.
For example, a company with current assets worth of $2 million and $1 million liabilities has a 2.0 current ratio.
Ideally, investment value will be boasted at 2.0 current ratio or more. The higher will be better. In choosing penny stocks, you have to avoid the ones with a current ratio of less than or near 1.0.
Quick Ratio
Different from the current ratio that considers all assets of a company, the quick ratio only considers assets that can quickly use. It aims to see how many times the business can easily cover what it owes in short terms.
Thus, this calculation excludes things like inventories, it focuses on cash, marketable securities, accounts receivable, and stock market investment, instead. To calculate the quick ratio, divide the liquid assets by the current liabilities.
Also read: How to Start Investing in Penny Stocks
