Stock lingo....

I often wonder..Before one purchases a stock, does one use data to drive one's decision?

I mean..Have you ever looked at a company's report, before you decide to buy this stock or that? Or do you read the comments somewhere in the internet about a certain stock before you make a decision? Is the fundamental analysis section of a stock's information important? And after all this, only to find yourself lost?

Finding the information to what you need is a critical first step to buying a stock. And I am going to refer you to a great site on this:

SEE: 5 Must-Have Metrics For Value Investors

ROI - Return on Investment

This is simply the money a company has made, or lost, on an investment. If an individual investor were to invest $1,000 into McDonald's stock and five years later sold it for $2,000, they had a 100% return on investment or ROI. The return is divided by the cost of the investment to produce the ROI.

Caveat: The problem with this is, it's easy to manipulate. Although the calculation is easy, what a company chooses to include in the costs of the investment may change. Did they include all costs in the calculation or selected costs? Before relying on the ROI, understand how it was calculated .

Earnings Per Share (EPS)

EPS is a measure of a company's profit. Take the profit, subtract the dividends and divide that number by the number of shares outstanding. Although EPS will tell the investor how much money the company is earning per share, it doesn't provide the expense information. If one company made $10 per share and another made $12 per share, the second company's earnings are more impressive only if they spent the same or less money to generate the income. The advise is to always Use EPS in conjunction with other metrics like return on equity.

Price to Earnings Ratio

The Price to Earnings Ratio (P/E ratio) compares a company's current price to its per-share earnings. The P/E ratio is calculated by dividing the price per share by the earnings per share. This metric is one of the best ways to gauge the value of the stock.If you were planning to purchase a new television, you would probably compare the features and price of multiple televisions. You would expect to pay more for more features.

When a stock has a higher P/E ratio than other similar companies, investors may regard the stock as overvalued, unless the company has larger growth prospects or something else that makes the high P/E worth the money. Remember that the actual price of a stock doesn't provide an indication of value. A higher priced stock could be less valuable when the P/E is examined.

The P/E ratio is important because it provides a measuring stick to compare valuations across companies. A stock with a lower P/E ratio costs less per share for the same level of financial performance than one with a higher P/E. What that essentially means is that low P/E is the way to go. But one place where the P/E ratio isn't as valuable is when you're comparing companies across different industries. While it's completely reasonable to see a telecom stock with a P/E in the low tens, a P/E closer to 40 isn't out of the line for a high-tech stock. As long as you're comparing apples to apples, though, the P/E ratio can give you an excellent glimpse at a stock's valuation.

Price to Book P/B Ratio

This is an equally good indication of what investors are willing to shell out for each dollar of a company's assets. The P/B ratio divides a stock's share price by its net assets, less any intangibles such as goodwill. Taking out intangibles is an important element of the price-to-book ratio. It means that the P/B ratio indicates what investors are paying for real-world tangible assets, not the harder-to-value intangibles. As such, the P/B is a relatively conservative metric.That's not to say that the P/B ratio isn't without its limitations; for companies that have significant intangibles, the price-to-book ratio can be misleadingly high. For most stocks, however, shooting for a P/B of 1.5 or less is a good path to solid value. (See Digging Into Book Value to learn how book value per share is normally calculated.)

Return on Equity

Return on equity (ROE) measures a corporation's profitability. It reveals how efficient a company is at generating profits. To calculate the ROE, divide profit by the amount of equity or total amount of money invested in the company. If company A had profits of $2 million but had received $1 million of equity, they would be considered more efficient than company B who also made $2 million but had $1.5 million in equity. Company A is operating more efficiently because they are able to make more money with less investment. This ROE should always be used in conjunction with other metrics to evaluate the health and earnings power of a company.

The Debt To Equity Ratio

Knowing how a company finances its assets is essential for any investor – especially if you're on the prowl for the next big value stock. That's where the debt/equity ratio comes in. As with the P/E ratio, this ratio, which indicates what proportion of financing a company has received from debt (like loans or bonds) and equity (like the issuance of shares of stock), can vary from industry to industry.

CAGR Compound Annual Growth Rate (CAGR), measures the annual growth rate of an investment. Since some years may see large gains while other years may return a loss.
The calculation is a little complicated but you can calculate it here .

Any successful investor will tell you that focusing on certain fundamental metrics is the path to cashing in gains. That's why you need to keep your eye on the metrics that matter. As a value investor, you already know that when it comes to a company's health, the fundamentals are king. Fundamentals, which include a company's financial and operational data, are preferred by some of the most successful investors in history, including the likes of George Soros and Warren Buffett.

Good luck and Happy Investing!

Source: Investopedia