Getting started
Before you buy a single share, run the stock through these four numbers. Quick read-through, then a short quiz to lock it in.
About 4 minutes to read, 6 minutes for the quiz. For educational purposes only — not investment advice.
Ratio 1 of 4
What it is
The stock's price divided by its earnings per share (EPS). It tells you how much investors are currently paying for every $1 of the company's profit.
Why it matters
It's the fastest gut-check on whether a stock looks cheap or expensive — versus its own history or similar companies. A high P/E usually means the market expects strong future growth (or the stock is overvalued); a low P/E can mean a bargain, or a warning sign.
How to find it
Listed right on the stock's quote page on any finance site or brokerage app, usually next to the ticker. To calculate it yourself: Price ÷ EPS (trailing twelve months earnings per share, found on the income statement).
Ratio 2 of 4
What it is
Net income divided by shareholder equity. It measures how efficiently a company turns the money shareholders have put in into actual profit.
Why it matters
A higher ROE generally means management is generating more profit per dollar of equity — useful for comparing profitability across companies in the same industry. Watch out: heavy debt can inflate ROE artificially, so it's worth checking alongside D/E.
How to find it
Usually in the "Key Statistics" or "Financials" tab on a finance site. To calculate it yourself: Net Income ÷ Shareholder Equity (both found in the company's annual report).
Ratio 3 of 4
What it is
The stock's price divided by its book value per share — the company's net assets (assets minus liabilities) per share. It shows what you're paying relative to the company's accounting net worth.
Why it matters
It's most useful for asset-heavy businesses like banks and industrials, to gauge whether a stock trades above or below its net asset value. A P/B under 1 can flag undervaluation — or a company in real trouble, so context matters. It's less meaningful for asset-light businesses like software, where most of the value isn't on the balance sheet.
How to find it
Listed in "Key Statistics" on most finance sites. To calculate it yourself: Price ÷ Book Value per Share, where Book Value = Total Assets − Total Liabilities (from the balance sheet).
Ratio 4 of 4
What it is
Total debt divided by shareholder equity. It shows how much a company relies on borrowed money versus its own money to finance itself.
Why it matters
A higher D/E means more leverage — and more risk, especially if earnings drop or interest rates rise. A lower D/E is more conservative but may mean underused growth capital. What counts as "healthy" varies a lot by industry (banks and utilities normally run high, software normally runs low), so compare within the same sector.
How to find it
Found in "Key Statistics" or the balance sheet section on most finance sites. To calculate it yourself: Total Liabilities ÷ Shareholder Equity (from the balance sheet).
Correct!
You just finished the 4 Ratios Course — P/E, ROE, P/B, and D/E are officially in your toolkit.
Certificate of Completion
The 4 Ratios Course
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Learn to Love Money
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Learn to Love Money is for educational purposes only and does not provide personalized financial, investment, tax, or legal advice. P/E, ROE, P/B, and D/E are a starting point, not a complete research process — always look at multiple metrics together, compare within the same industry, and consider that these figures are backward-looking and don't guarantee future results. Nothing on this page is a recommendation to buy, sell, or hold any security. Always do your own research and consult a licensed professional before making financial decisions.