3 Simple Investment screening ratios you can use:
Do you find it hard to screen for potential investment opportunities? Here are 3 simple screening ratios just to get started. They tackle 3 key questions. Is it potentially cheap? Does it have investment potential? Will it be "safe"?
1. Earning Yield (EBIT / Enterprise Value) – First cut on valuation
2. Return on Invested Capital - First cut on profitability
3. Debt / Equity Ratio - First cut on financial health
There are myriad other criteria you can look for, example stable gross margins, growing revenues etc but I always start with these 3 and then fine tune / narrow down.
What do you use?
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