5 Numbers Every Investor Should Know

I'm not saying you should never read an annual report. But let's be real—most people won't. These five numbers give you a solid starting point for evaluating any stock.

P/E Ratio (Price-to-Earnings)

Stock Price ÷ Earnings Per Share

This tells you how much you're paying for each dollar of profit. A P/E of 20 means you're paying $20 for every $1 the company earns annually.

What's a good P/E? It depends on the industry. Tech stocks often trade at 25-40x because they're expected to grow fast. Banks and utilities might be 10-15x. Compare a company to its peers, not to random stocks.

Watch out: A super low P/E isn't always a bargain—the company might be declining. And a high P/E doesn't mean it's overpriced—maybe it's just growing fast.

P/B Ratio (Price-to-Book)

Stock Price ÷ Book Value Per Share

This compares the stock price to the company's net assets (what it owns minus what it owes). A P/B of 1 means you're paying exactly what the company is worth on paper.

When it's useful: Banks, insurance companies, real estate—anything with lots of assets on the balance sheet. For tech companies with mostly intangible assets, P/B is less meaningful.

Tip: A P/B under 1 might mean the stock is undervalued—or that the market thinks those assets aren't worth what the books say.

ROE (Return on Equity)

Net Income ÷ Shareholder Equity × 100

This is the one Warren Buffett loves. It tells you how efficiently a company turns shareholder money into profit. An ROE of 15% means for every $100 of equity, the company generates $15 in profit.

What to look for: Consistently above 15% is solid. Above 20% is excellent. The best businesses maintain high ROE for years.

Watch out: A company can boost ROE by taking on debt. Check the debt levels too.

Dividend Yield

Annual Dividend ÷ Stock Price × 100

If you're into dividend investing, this tells you what cash return you'll get just for holding the stock. A 4% yield means $100 invested pays you $4 per year.

What's good? The S&P 500 average is around 1.5%. A yield of 3-5% is decent. Above 6%? Be suspicious—the company might be in trouble and the dividend could get cut.

Tip: Don't chase yield. A company that grows its dividend 10% yearly from 2% is better than one stuck at 5%.

Debt-to-Equity Ratio

Total Debt ÷ Shareholder Equity

This shows how much the company relies on debt versus its own money. A ratio of 1.0 means equal parts debt and equity. Higher = more leveraged = more risk.

What's acceptable? Varies by industry. Utilities often have D/E above 1.5 (normal for them). Tech companies usually run under 0.5. Real estate can be higher. Compare to industry peers.

Watch out: High debt is fine in good times, but when recession hits or rates rise, heavily indebted companies struggle first.

Putting It All Together

Here's a quick checklist when you're researching a stock:

✓ P/E reasonable for the industry?
✓ ROE consistently above 15%?
✓ Debt-to-equity not out of control?
✓ If paying dividends, is the yield sustainable?

No single number tells the whole story. A cheap P/E might hide problems. A high ROE might come from debt. Always look at multiple metrics together.

The Bottom Line

You don't need to be a financial analyst. Just knowing these five numbers puts you ahead of most retail investors who buy stocks based on tips and vibes. Spend 10 minutes checking these metrics before you buy anything.