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Price earnings ratio

p>When analyzing the fundamentals of equity, we need to understand that companies are nothing more than earning engines. This goes for both investments in stocks of ‘traditional’ companies and investments in equity in things such as crypto companies. There is nothing really behind the value of an equity investment other than the earnings stream (considering that they don’t have a huge amount of cash or assets on the books).

If companies are growing earnings, if they are following their plan to grow their earnings and if that seems to be working, then shareholders of that company are generally going to be happy. If a company has no earnings, or worse, is losing money, then that is often not good for the value of their stock.

When analyzing companies that actually have earnings, there are two very basic tools that we can use. The first metric that we can use is the price/earnings ratio or what we call the p/e ratio. The second metric that we can use is the price/book ratio or what we call the p/b ratio. There are many other metrics that can be used when analyzing an equity investment fundamentally, but these two will give you the greatest bang for your buck!

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