If you are a prudent stock market investor, then you will not invest in a stock without understanding its company's financials.

This requires a study of the company's financial accounts (Balance Sheet, Profit & Loss Account and Cash Flow Statement). Many investors base their investment decisions only on these statements. They do not bother to calculate the financial ratios, which is a mistake, because financial ratios can indicate business trends and profitability. Not just that, one should even compare the company's financial ratios with established industry standards set by its peers. In some cases, these ratios can help predict if a company is on its way to bankruptcy.

So, the bottom line is that you need to work out financial ratios before you invest in a stock. In the Finance Section , BusinessTomato.com provides an overview of the main Liquidity, Debt, Profitability and Efficiency Ratios. Register, leave your comments and help us improve our content!

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