To find out if a company is profitable, simply look at its P/E value. P/E is abbreviation for Price to Earnings Ratio. If you buy a share for $10, and the P/E is 14, it means that it would take the company 14 years to earn back $10 from the $10 you invested in it, given its current balance sheet.
I consider P/E of 14 or less to be a good ratio. Higher numbers are risky. If you see the value of -, then it means that the company is not making any profit. If the company is not making a profit, its earning is 0. Anything divided by 0 is undefined, which is why you do not see a number for P/E.
Where can you find P/E values? Just go to http://finance.google.com or any other major site that lists stock information.
I have a simple rule in investing. If a company does not have a good track record of making a profit for the last five fiscal years, I do not invest in it. A company that hasn’t made a profit over the last five years could be a good business about to take off but it is risky. Don’t make the decision to buy or sell a stock based on P/E alone. Understand the business and then invest if you see a significant upside and minimal risk. P/E is a good value to help you eliminate the riskier investments so that you can focus your research on less risky and more promising investments.
