Benjamin Graham is known as the father of value investing. His screener has been used by many investor, mostly with slight modification. His student Warren Buffet even became the second richest man on earth. In his book, “Security analysis”, he stated that “An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” Graham’s screener are:
1. PE of the stock has to be less than the inverse of the yield on AAA Corporate Bonds.
2. PE of the stock has to less than 40% of the average PE over the last 5 years.
3. Dividend Yield > Two-thirds of the AAA Corporate Bond Yield.
4. Price < Two-thirds of Book Value.
5. Price < Two-thirds of Net Current Assets.
6. Debt-Equity Ratio (Book Value) has to be less than one.
7. Current Assets > Twice Current Liabilities.
8. Debt < Twice Net Current Assets.
9. Historical Growth in EPS (over last 10 years) > 7%.
10. No more than two years of negative earnings over the previous ten years.

From the above screener, I conclude that you must choose stocks, which have low price /cheap (screener 1, 2, 3, 4, 5), represents healthy company (6, 7, 8), have growth (9), and have good earning (10). So by looking at those conclusion you can make your own screener.

Tags: Benjamin Graham, Benjamin Graham Screener, Corporate Bonds, current assets, current liabilities, Dividend Yield, screener

Financial ratio can tell a lot about a company. You can see how much they make profit, or how healthy they are. Financial ratio can help making decision in picking a stock. To know whether a company is healthy or not, you can check their current ratio (current assets / current liabilities), debt ratio (total debt/total assets), and debt to equity ratio (total debt / total equity). To know the performance of making profit, check the Return on Asset (ROA = Net Income / total assets) and Return on Equity (ROE = Net Income / total equity). Another important ratio is Earning per Share (Net Income / total outstanding shares), Price/Earning ratio (P/E = market price per share / earning per share), and price/book value ratio (market price per share / book value per share). The higher the current ratio, ROE, ROA is better. The lower the debt ratio and debt to equity ratio is better. Low P/E and price/book value ratio means the stock is cheap. Cheap stock means that it has poor performance or people didn’t realized that the company is good. To make decision on which stock you should buy, compare financial ratios between each company in the same sector / business.

Tags: current assets, current liabilities, Financial Ratios, P/E, ROA