As a general rule, debt to equity above 80% is considered very risky and financially unhealthy. Usually young singles or couples purchasing their first home with little money down will fall into the 80% or higher debt to equity ratio category. As you build income capability over the years and grow your savings account, a more ideal debt to equity ratio would be in the range of 25% – 50%. Typically older couples will have %50 or less debt to equity ratios.

To use debt to equity ratios as a financial health indicator for personal finance, it is best to track this ratio every year. To calculate the ratio from your personal finances, first add up all your liabilities. Liabilities include home loans, auto loans, and any personal outstanding loans in addition to credit cards and bills owed. Next, add up all your assets which should include your home appraised value, car appraised value, and all amounts in your savings, checking, 401K, IRA and investment accounts. Simply divide your debts or liabilities by your assets and this is your current debt to equity ratio. Start tracking this ratio on a yearly basis. To make it easy to remember, pick a time you usually review all your financial accounts such as at the end of the year, or during tax time in April. You should strive to decline your debt to equity ratio each year over time until you are in the healthy range of 50% or less.

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There are several suggested methods for using the PE ratio as a fundamental indicator in the value of a stock. One method is to find the average PE ratio across the stock industry. For example, if you are researching biotechnology companies, stock screening and research sites usually provide the industry average PE ratio. If the stock under research has a PE ratio lower than the average industry PE, it may signal a good buy.

Some investors use the PE ratio calculation with the forward looking earnings value. By dividing the stock price of one share by the future yearly earnings expectation, you can determine the forward looking PE Ratio. If the value is lower than the industry average, this can also strongly suggest the stock may be at a prime purchase point.  The reason is that the stock is discounted based on the future earnings, and if the stock hits its future earnings, its price should rise to the industry average, resulting in a healthy stock price appreciation.

Now that you know what the PE Ratio is and how it’s used, have fun searching through stocks to find which ones stick out as exceptional discount prices. Most stock screen sites and stock search pages allow you to search and sort by PE Ratio.

Please note that PE Ratio should not be the only indicator or piece of information used to make decisions on stock purchases. It is however one of the most fundamental indicators used by stock analysts when researching stocks, and should be used as one component when deciding which stocks are best to buy.

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Once you have identified some stocks you are interested in, now you need to look more closely at them. The first thing you should do is write them down and leave enough room for the data that you are going to evaluate them on, Microsoft Excel also works great for this. The key things to look at are Dividends, P/E Ratios, Return on Equity, Stock Ratings, Debt, Earning, Insider Activity, and basic chart evaluations.

Dividends are payments that the company makes to the stockholder from its profits. The benefit of dividends is that regardless of what the market is doing you will get money from that stock in the form of cash payment. Dividends are paid out on a quarterly basis. When looking at dividends it is a good idea to see what the industry average is for that stock and compare. For dividend paying stocks, look for stocks with a dividend that is comparable to the industry average or above. If you would like to learn more about dividend investing, please read this article on High Dividend Investing.

P/E Ratio is the Price to Earning Ratio. It evaluates how good the stock price is and whether it is over or undervalued. For stocks with a P/E value that is higher than the average for the industry that means that investors are willing to pay more for that stock than others. Opposite holds true for low P/E values, investors are willing to pay less. There are many different philosophies on whether a company stock price is better if it is higher or lower than the average. Look at stocks that have a low P/E compared to the industry. If you buy stocks with a high P/E, you are paying a premium for investor opinion of the stock. Think of a low P/E as a stock on sale.

ROE is the Return on Equity. This is how the company uses your money that you have invested in their company through stock purchases to generate profits. In theory the higher the ROE is, the more easily the company can generate cash internally. It is a good idea to compare this number to the industry average as well. Look for companies with a higher ROE than the industry average.

Stock Ratings are a quick look at others opinions of the stock. There are many different ratings out there but the ones to look for evaluating stocks are the Motley Fool Caps Ratings and Analyst ratings. The Motley Fool website has a Caps Rating system which is a network of other investors who rate a stocks performance against the S&P based on a 5 star grading system. A five stars stock is expected to outperform the S&P, and a one star stock is expected to under perform. Look for four or five star stocks. Motley Fool also has a bunch of other information located on the stock page that is good data as well to look at but will not be addressed in this article. Analyst ratings can be found on many of the investing websites but for this article we will look at MSN Stock Scouter. The stockscouter rates stocks on a scale from 1-10, with 10 being the best, to determine the expected risk and return. Look for stocks that have at least seven in the rating systems. There is also more information available in the left navigator menu called Analyst Ratings. This tells whether according to the analysts surveyed is the stock a strong buy, buy, hold, sell, or strong sell. Obviously, you are looking for stocks that are a buy to a strong buy here.

Debt is another area that needs to be considered when evaluating a stock and given today’s credit constraints it maybe even more important. The thing you have to keep in mind with debt is that some industries carry more debt than others. It is important when looking at debt ratios that you compare them to the industry average. Look for stocks that are at or below the industry average for this part. Stay away from stocks that have debt that is higher than the industry average because the company may not be as stable as other in the industry.

Earning is one of the key things that analysts and investors look at when evaluating a company. The stock price usually follows earning. You should look at earning by comparing quarter-to-quarter and year-to-year. For example, you are looking at a retail stock that has high earning in the 4^th quarter and lower earning in the first quarter. It would not be good to look at the earning and think that the stock is going down. What you should look at is the previous years 4^th quarter to see if there was earning growth from that year to the current year. This is a better indicator or earning growth and a more reliable measure. Usually a company with negative earnings should be avoided.

Insider Activity is just another piece of the final decision. This information can be found on most financial websites and it tells whether the high level employees of a company are purchasing or selling their personal stock. Generally, if there is insider purchases than the employees think that the stock will go up. This is not a make or break piece of the decision just one other thing to look at.

Basic Chart Evaluations for a stock can tell you a lot about where the stock has been and where it maybe going. It is a good idea to look at a year, 5-year and 10-year chart of stock prices. Generally, you are looking for an upward trend to the stock price over the course of the company’s life. You can also look at a simple moving average of the stock price over a period. This is usually located under the technical indicators of the chart. This will tell you the trend of the stock. Set the averages at a 50-day average and a 20-day average. Where the lines cross, the stock is trending either up or down. This chart is showing that as of May 2009 this stock’s price is trending up so it would be a good time to buy.

After you have looked at all these indicators for your stocks that you have selected you can compare the results for each stock to make your decision on what to purchase. Remember you are looking for stocks with a dividend, low P/E, high ROE, good ratings, low or equal debt, positive earnings, maybe with some insider trading and a chart that shows growth in the stock price. Knowledge is power so; the more you learn the better decisions you make.

1. Pay attention to where consumers are shopping.  For example, go to your local mall and sit and people watch for 15 to 30 minutes.  Note which stores are frequently visited and which are not.  This will give you a general idea of what stores or companies are successful at attracting customers resulting in potential profit increases.
2. Notice the national news trends and top stories.  For example, when fuel prices hit record levels, there were thousands of news stories, articles, and specials on alternative energies such as solar and wind.  If you would have invested in the top solar companies during that time, you would have doubled or tripled your money. (Notice that the focus is not on the remarkable gains here, but rather the fact that this strategy can and is profitable.)
   
3. Read current issues of popular magazines and note the current clothing, entertainment, and lifestyle advertisements.  By connecting popular products to companies, you can generally find excellent investments that are not yet fully discovered by investors.
4. Cash in on housing trends.  Observe your local community and state for general housing trends.  If homes are selling rather quickly, and new neighborhoods are growing rapidly, find out which builders are profiting from the housing boom, and invest in those companies.  Alternatively, you can invest in REIT’s (Real Estate Investment Trusts) which generally have higher dividends and tend to sky rocket as housing prices trend upward.  If real estate is level or declining, it’s good to look for REIT’s that focus on apartment complexes or rentals only, as the rental market tends to be very positive when housing prices are in decline.

Following a few simple steps as noted above can help individual investors get great leads on potentially profitable stocks.

If you are investing for retirement, and you are currently 25 years old, then you have 40+ years of annual growth before you would have to touch your retirement money. By just investing $100.00 per week and gaining a humble 6% return each year over 40 years, your investment of $208,000 would be equal to $804,762.22. Bump up your yearly investment returns by just 2% to the 8% level, and you would have a balance of over a million dollars ($1,347,093.90).

So if you want to start building wealth in your 20′s, one easy strategy is to start putting as little as $100.00 into stocks, mutual funds, or money market accounts to begin the compound annual growth that will get you to millions once you retire.