Derek Dubner is the co-chief executive officer of the information solutions provider IDI, Inc. Providing data-based insights that support advanced market analytics, Derek Dubner advocates for proper research when pursuing investment success.
Investing in stocks requires that an investor carefully analyze data to figure out what stocks are good buys and good sells. While looking at companies’ profit and loss accounts and balance sheets may be helpful, the process can be time-consuming and may not offer much comparative advantage.
Analyzing financial ratios can be a more efficient mode of research. The two financial ratios every investor should assess before buying stock are price/earnings ratio and debt/equity ratio.
Price/earnings ratio indicates the amount investors are paying for every unit of earnings from the target company. This information will help investors determine whether the company is overpriced or undervalued. Investors can also compare the company’s current P/E ratio with that of previous years or with the industry average to determine whether it would be a good buy. Generally, a company with a P/E ratio at par with the overall market or a relatively lower one is a good purchase.
The debt/equity ratio is an indicator of how much debt the company has accumulated in relation to the equity held by shareholders. A company with a low debt/equity ratio has more room for expansion, especially given its greater leeway to solicit funds.
Derek Dubner 
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