This approach typically evaluates many financial ratios and figures, including:

• Historical prices - Reviewing a stock's historical prices and trading volume for at least a one-year period often provides useful information. It gives you a feel for price volatility, the pattern of a stock's price movements, and how much interest investors have in the stock.


• Earnings per share (EPS) - This represents the company's net income after taxes divided by the average number of common shares outstanding. Investors typically look for steadily increasing EPS, which shows a pattern of consistent growth. EPS is a well-publicized statistic, which is often referred to as a summary indicator since it conveys so much information about the company's performance.


• Price/earnings (P/E) ratio - This is the company's stock price divided by its EPS. This ratio is a reflection of how highly regarded the stock is in the stock market. To get a feel for the reasonableness of a company's P/E ratio, you should review its historical P/E ratio, the P/E ratios of other companies in similar industries, and the P/E ratio of the market as a whole. Typically, companies with higher growth rates have higher P/E ratios.


• Current ratio - This ratio is calculated by dividing current assets by current liabilities. It is a measure of a company's ability to pay its current obligations, with higher ratios indicating a stronger ability to make these payments.


• Debt ratio - This is the company's total outstanding debt divided by shareholders' equity, measuring how leveraged a company is. High levels of debt can make a company more vulnerable during economic downturns.


• Price-to-book value - A company's book value equals its assets less its liabilities, commonly referred to as stockholders' equity. Dividing the stock's price by its book value per share will give you the price-to-book value. Companies with low price-to-book values are often considered value stocks.


• Return on equity (ROE) - This is calculated by dividing the company's income by its shareholders' equity. It is used to measure how well a company's management is utilizing


• capital retained in the company.


• Dividend yield - Dividend yield equals dividends paid divided by the stock price. How important this ratio is will depend on how important you consider dividends.


• Price-to-sales ratio - This ratio equals a company's share price divided by annual sales per share, and can be useful when evaluating companies with little or no profits.


• PEG ratio - This ratio equals a company's P/E ratio divided by its expected earnings growth rate, and is generally useful when evaluating growth stocks.


• Total return - Your total return equals dividends plus or minus changes in stock price divided by your purchase price. Most of this information can be found in annual reports, Forms 10-K filed with the Securities and Exchange Commission, articles, research reports, and Web sites. It is typically helpful to review current information as well as historical trends to determine whether these ratios are improving or consistent.


• Some factors can't be evaluated through the use of financial ratios, such as the quality of management, prospects for the company's industry, and where the company stands in relation to its competitors. Those factors will require your subjective analysis.