indicated otherwise. Should you have run out and sold you Cisco
shares? Maybe. But remember that ratios are just one angle of valuing
stocks, and they should always be considered in relation to other factors
such as how a stock's valuations fare versus others in the same industry.
Some may have argued that indeed Cisco's stock was right on (or even
undervalued) given its sequential growth potential. This argument begs
the investors not just look at its one-year growth but its potential in five
or even ten years where its stock price can be justified based on this
long-term forecast. Of course chances are that by the time you reach the
five or ten-year mark, the stock price has grown substantially with
investors again looking another five or ten years down the road. Again
the PEG ratio cannot be applied to all stocks broadly but perhaps to
those with high earnings growth potential in rapidly expanding
industries such as the high-tech during the 90s. And once again, since
this ratio is based on past performance there are no future guarantees.
And in Cisco's case such statement became painfully true for the many
investors who lost money with this stock. Obviously companies with
zero or negative earnings do not have meaningful PEG ratios. Investors
must rely on other factors (such as estimate, sentiments, and luck) to
value their stocks.
The financial data of a company indicate its financial health and its
ability to maintain its operations and growth.
Current Ratio - This is a company's current assets divided by its
year-ahead liabilities. This is a test for the strength of the company to
meet its expected 12-month liabilities. Liabilities include items such as
note payments (i.e., interest payments to bond holders), loan payments,
and accounts payable. Obviously a company that is not able to meet
these obligations would be in risk of bankruptcy, underlining the …