How to Evaluate Stocks

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1) Profitability:

1. Earnings on the book value
2. A high rate of return on invested capital often goes along with a high annual growth rate in earnings per share
3. For manufactre companies, the profit figre per dollar of sales is usually an indication of comparative strength or weakness. We use the "ratio of operating income to sales".                 

2)Stability

1. Measured by the max decline in per share earnings in any one of the past ten years, as against the average of the three preceding years. No decline translates into 100% stability

3)Growth

P/E

4) Financial Position

Ratio of current assets/current liabilities, the bigger the better

or

Quarterly operation generates enough cash to cover debts

5) Dividends

history of continuous dividend without interruption

6) Price History

Lowest point/highest point in the past 30 years


CONCLUDED

Adequate size
A sufficiently strong financial condition
Continued dividend for at least past 20 years
No earning deficit in the past 10 years
10 year growth of at least 1/3 in per share earnings
Price of stock no more than 1.5 tims net assets value
Price no more than 15 times average earnings of the past 3 years

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