Investment involves staking capital in an enterprise, with the expectation of profit. It is nothing but the use of liquid funds to gain income or increase capital. In order for money to grow, investors need to invest judiciously. There are certain guidelines to be followed to avoid major mistakes.
Price of the Company: An investor needs to research on the Market Capitalization of the company he is planning to invest in. Market Capitalization or Market Cap is the total cost of acquiring the entire company. It refers to the price of all outstanding shares of a company multiplied by the quoted price per share, at any given point of time. It is important to gauge the relative cost of a stock, before making any investments in the company. This can be done by learning the P/E Ratio. P/E ratio refers to the Price is to Earnings Ratio. It is the ratio of a companys current share price to its earnings per share.
P/E Ratio = Market Value per Share
Earnings per Share (EPS)
Example: If a company is trading at $50 per share and earnings per share over the last 1 year were $ 2 per share, then, P/E ratio for this companys stocks would be $50/$2, that is, $25. High...
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