If I could only pick four, I'd go with the followi...

2010-02-20T21:41:51.711-06:00

If I could only pick four, I'd go with the following ( all of which would be calculated on the basis of 10 year historical averages ):

1.FREE CASH FLOW MARGIN ( margin as a product of FCF/Sales ). I prefer companies that produce free cash flow at a rate of 10% of sales or more. FCFM demonstrates tangible outcome of sustained earnings and the possibility that a company has an "economic moat".

2.DIVIDEND GROWTH. I prefer companies that have paid dividends without interruption for a minimum of 10 years and have raise dividends at an annual average rate of 10% or more. Demonstrates a commitment to shareholders and confirms sustainable earnings over course of the business cycle.

3. DEBT/EQUITY. I prefer companies that are able to keep long term debt/equity at a level of 50% or less. Demonstrates that a company is able to operate without excessive leverage and that it may weather the storm of bear markets better than over-leveraged competitors.

4. CYCLICALLY ADJUSTED PRICE/EARNINGS ( ie, current price divided by 10 year average earnings ). I prefer to take positions in companies when price is no greater than 16x cyclically adjusted earnings. This metric helps smooth out earnings over course of the business cycle and provide a modicum of assurance that one is not overpaying.

the same four i not only pick them i use them,than...

2010-02-20T14:25:44.906-06:00

the same four i not only pick them i use them,thanks to what i learn from div-net

I'd have: 1. Price/Book - Lower P/B ratio stocks ...

2010-02-20T10:12:50.995-06:00

I'd have:

1. Price/Book - Lower P/B ratio stocks tend to give better results over 1-5 years.

2. Gearing (net debt/equity) - Low gearing gives a company a better chance to survive whatever is causing it to have a low P/B.

3. Current Ratio - For the same reasons you gave.

4. Liquid ratio - Same as current ratio but allows you to ignore companies with valuable but illiquid stock.

Comments on The DIV-Net: Only 4 Ratios

If I could only pick four, I'd go with the followi...

the same four i not only pick them i use them,than...

I'd have: 1. Price/Book - Lower P/B ratio stocks ...