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Expose the Fundamentals: Unless the market is being completely driven by sentiments at a given point of time, market related ratios expose the fundamentals of the company in question.Since the quoted stock price is not the actual price, market related ratios offer a window to analysts using which they can gauge whether a stock is over or under valued and then act accordingly. Of course these profits subject to risks and that is what makes investing challenging. Hence the actual price you are paying is USD 10 to buy a future recurring profit stream of USD 2 per share. This 1% ownership means you get 1% of the profit, which in our case is let’s say USD 2. So if you are buying 1 share at USD 10 and there are 100 shares, you own 1% of the company.

The stock price just means the price that you are paying to obtain a fraction of the earnings of the company. It is important to understand that the quoted stock price is not the actual price of the share. Why the Stock Price Is Not the Actual Price? One component of all market related ratios is the current stock price. Market related ratios compare the current stock price of the company which is being quoted on the stock exchange to various balance sheet, income statement and cash flow items. Market related ratios help investors use the numbers stated on the balance sheet to better their understanding of the same. This is the reason why investors are particularly interested in how the current share price of the company compares with its fundamentals. This means that they buy shares at a certain value and make a profit only when the price of the shares go up or they get regular dividends from their investments or a combination of both. Rather they invest in the company through the stock market. Most investors do not invest directly in the company i.e.