How to pick valuable stocks

"It is important to remember that earnings ratios are not indicators of profitability. They advise an investor on the earnings made per share, the dividend policy of a company, and the extent of income ploughed back into the company for its expansion, growth and replacement of assets.

It is critical that investors examine these ratios, especially the earnings per share and the dividend payout. The earnings per share would help one determine whether the market price of a share is reasonable. If the dividend payout ratios are very high investors must be concerned as it can indicate that the management of the company is not particularly committed to its long-term growth and prospects."

Read the full article here at rediff.