Question: What ratio formulas are used to evaluate publicly traded companies in the financials sector for investing in the companies stock?
To evaluate publicly traded companies in the financial
sector for investing in their stock, some of the most important ratio
formulas used are:
Price-to-Earnings (P/E) Ratio
P/E Ratio = Stock Price per Share / Earnings per Share (EPS)
The P/E ratio compares a company’s stock price to its
earnings and is widely used to value financial companies like banks and
insurance firms. A lower P/E ratio may indicate an undervalued stock.
Price-to-Book (P/B) Ratio
P/B Ratio = Market Capitalization / Total Book Value of Equity
The P/B ratio compares a company’s market capitalization
to its book value of equity. It is useful for evaluating asset-heavy
financial firms like banks whose assets are typically held at historical
costs on their books.
Return on Equity (ROE)
ROE = Net Income / Shareholders’ Equity
Return on equity measures a financial company’s
profitability by showing how much profit is generated with the money
shareholders have invested. Higher ROE is preferred.
Debt-to-Equity (D/E) Ratio
D/E Ratio = Total Liabilities / Shareholders’ Equity
The D/E ratio evaluates a financial firm’s financial
leverage by comparing its total debt to shareholders’ equity. Lower
ratios indicate the company is using less debt to finance operations.
Net Interest Margin
Net Interest Margin = (Investment Income – Interest Expense) / Average Earning Assets
For banks and lenders, the net interest margin shows the
profitability of their lending activities by looking at the difference
between interest income and interest paid on deposits and borrowings.
These ratios help analyze the valuation, profitability,
leverage, and operational efficiency of financial sector companies when
considering investing in their stock. Comparing these ratios to industry
peers and historical trends provides valuable perspective.
Question: Write html code for formulas an calculate price to earnings ratio, price to book ratio, return on equity ratio, debt to equity ratio, net interest margin.
Price-to-Earnings (P/E) Ratio
P/E Ratio = Stock Price per Share / Earnings per Share (EPS)
Enter Stock Price per Share:
Enter Earnings per Share (EPS):
Price-to-Book (P/B) Ratio
P/B Ratio = Market Capitalization / Total Book Value of Equity
Enter Market Capitalization:
Enter Total Book Value of Equity:
Return on Equity (ROE)
ROE = Net Income / Shareholders’ Equity
Enter Net Income:
Enter Shareholders’ Equity:
Debt-to-Equity (D/E) Ratio
D/E Ratio = Total Liabilities / Shareholders’ Equity
Enter Total Liabilities:
Enter Shareholders’ Equity:
Net Interest Margin
Net Interest Margin = (Investment Income – Interest Expense) / Average Earning Assets
Enter Investment Income:
Enter Interest Expense:
Enter Average Earning Assets: