About the P/E, ROE and Debt Ratio

You know ?
There is an important thing for us to understand on the meaning of P/E, ROE and Debt Ration.

The P/E is a measure of popularity rather than something fundamental about the stock.
It goes up when the stock is more popular and goes down when the stock is less popular.

The thing in the P/E that matters is the return on equity (ROE), it is a measure of how well the earnings are going to grow.
Don't ignore the P/E but taken in isolation it is a dangerous thing to focus on.

The ROE is the true judge of a company's profitability. Calculated by dividing net profit before abnormals by total equity, if the ROE is good then it shows a profitable stock that is worth further investigation to nowadays.

As below, it is a standard to see its situation.
A ROE of at least 10 percent is one benchmark used to distinguish relatively profitable companies from unprofitable ones.
A ROE of 6 percent or less means the company is struggling to deliver a sufficient return to shareholders.

It is also possible to determine a company's risk profile by looking at its cash flow after capital spending, its debt to equity ratio and its ability to pay its interest costs which will be particularly important with the expectation of higher interest rates in many countries.

A business can report a healthy looking profit and yet still be in real financial distress.

One cause is when a company is spending much of its cash on buying or improving assets, reducing drastically the profit available to be distributed to shareholders.

A rule of thumb is to look for a debt to equity ratio (total debt less cash divided by equity) of less than 50 percent.
An exception to this rule is the banking industry because the banks have much higher ratios because their business is to trade- debt. A high debt to equity ratio leaves the shareholders at risk if assets are revalued downwards.

Er, so good~ we are learning to be winners and maybe I am waiting for your newly viewpoints.