Key Ratios to check before buying stocks.

So, there is a lot confusions between retail investors about how to pick good stocks or what are key ratios to be checked before investing in any particular stock. There is no particular key metric by which you can decide the particular script is good or bad. Having said that there are some ratios or key metric by which you can identify how company has performed in a particular year and on basis of that you can invest. 

1. EBITDA: Earning before Interest, Tax, Depreciation and Amortization represents the core profit of the organization. It represents the variation income and includes certain non-cash expenses. It can also be viewed as an proxy to cash flow statement. 

2. EBIT: Earning before Interest and Tax represents the overall operating profit after deducting the non cash expenses. EBIT is used to analyze the performance of a company's core operations without the costs of the capital structure and tax expenses impacting profit. 

3. Stock Turnover Ratio: Stock Turnover Ratio indicates in how many days inventors is sold/used/replaced. Stock Turnover Ratio is in Days format. Company having lesser STR indicates inventory is being sold or used at a faster pace. 

4. EPS: Earning per share is total profit divided by total no. of outstanding shares. For example, Company A has its stock price as 100 Rs and EPS is 10. It means investor is willing to pay 100rs in order to earn additional 10rs for each share. 

5. Acid-test Ratio: Acid Test ratio is also quick ratio. Acid Test ratio helps in identifying how capable is current asset to pay current liability. Formula of Acid test ratio is Current Assets - Inventory/ Current Liability. It indicates the ability of a company to pay its short term liability.  

6. Receivables turnover Ratio: Receivables turnover ratio is used to identify how efficiently company collects its payment from clients. If company have high account receivables and company is not able to collect its payment, eventually it will lead to loss as debtors can turn into bad debt. In every business collecting payment from clients is the crucial role.