• Many investors rely on fundamentals when picking stocks.stocks and shares image by Fyerne from Fotolia.com
  
  Stock fundamentals assess various financial aspects of a company. Fundamental measures often compare the price of a stock to certain aspects of a company's balance sheet. Ultimately, fundamental analysis attempts to evaluate the financial soundness of a company and identify stocks that have high potential value for investors.
  
  

P/E Ratio

• The price to earnings ratio (P/E ratio) is one method used to determine a stock's value. The P/E ratio is calculated by dividing the price of a share by a company's earnings per share. Some investors attempt to find undervalued stocks by looking for stocks with low P/E ratios. If there are many buyers for a stock with a high P/E ratio, this likely indicates that investors expect future earnings to increase.
  
  

Dividend Yield

• The dividend yield of a stock is the percentage amount a company pays to shareholders relative to the share price. Dividend yield is calculated on an annual basis with the simple formula of annual dividend per share / share price. With some stocks, dividends are paid on a semi-annual or quarterly basis, but dividend yield still represents the annual dividend.
  
  

Debt/Equity Ratio

• The debt to equity ratio calculates the proportion of a company's financing through debt relative to financing through equity. Normal debt to equity ratios vary by industry. A relatively high debt to equity ratio is not necessarily a bad thing, as a company may be able to achieve increased returns through debt financing. However, greater debt does entail greater risk because of the fact that returns and interest rates are both subject to change.