Financial ratios help investors find stocks that offer good value by giving numbers meaning an putting them into perspective. If you’re considering investing in a company’s stock, ensure that the company passes these ratio tests.

  • Price-to-earnings (P/E) ratio: For large-cap stocks, the ratio should be under 20. For all stocks (including growth, small-cap, and speculative issues), it shouldn’t exceed 40.

  • Price-to-sales (P/S) ratio: This ratio should be as close to 1 as possible (or below 1).

  • Return on equity (ROE): The ROE should be going up by at least 10 percent.

  • Earnings growth: Earnings should be at least 10 percent higher than in the year before. This rate should be maintained over several years.

  • Debt-to-asset ratio: Debt should be 30 percent or less compared to assets.