And still, based on what does an investor choose the shares of one car manufacturer over another's? Or on what grounds does he decide whether he should or not include in his portfolio shares of a company from a given sector? The best is to seek the help of the analysis departments of the brokerage companies and to read the reports made by their analysts.

The analysis of a company starts with the analysis of their financial statements. These documents can be usually found on the site of the regulated market on which the company shares are traded or on the site of the company. The main documents are the profit and loss account, the balance sheet and the cash flow statement. The profit and loss account shows the results over a period. It is here that the incomes and expenses of the company may be identified by destination. By consulting it, an investor can find out whether the company has made a profit or lost money during the respective period, he can identify the main causes and make a comparison with the similar period of the previous years. The balance sheet does not provide information on an entire period, like the profit and loss account does, but shows the situation of the company at a given moment (the last day of the period covered by the profit and loss account). The company assets and financing sources may be found in the balance sheet, as well as the accounting values of the buildings, land and equipment of the company. Also, the values of the inventory, unfinished production, receivables, cash, debts, dividends paid, own equity of the company are all to be found in the balance sheet. The cash flow statement provides information on the payments made and the amounts collected by the company within the given time interval. Thus, one can see where the money comes from and how it is used by the company.

Between the moments companies publish their financial reports, the investors' opinion on shares (therefore their price) may be modified by the news about the companies or by management's guidance. The source of such news is represented by the newspapers, the Internet or the TV shows. Naturally, an investor must be careful with the market news, as some can prove erroneous, and ponder thoroughly all its consequences.

Besides the in-depth analysis of the company, which starts with the financial statements and ends with a valuation based on its future business, a simple and generally efficient evaluation method uses ratios and multiples. To calculate the values of the analysed company, the financial statements are sufficient in most cases. Such values must be compared to those of the ratios and multiples of the other companies in the same sector and of the same dimension as the analysed company. These comparisons, as well, should be made cautiously, as there may be differences between the ways various companies present their financial statements.

The most important ratios are:

• Earnings per share (EPS). The value of this ratio equals the profit recorded by the company for one year, divided to the total number of shares. It practically shows what part of the profit corresponds to the holder of one share (even if a part of this profit will be reinvested in the company rather than being distributed to shareholders). The bigger the EPS, the better for the shareholder. The evaluation of the company may be done based on the earnings of the last year, but the investors are better informed by an EPS calculated based on the earnings estimated for the following year.
  
  
• Price per earnings (P/E or PER) represents the ratio between the price of the share and the earnings per share. The smaller this ratio, the more attractive the share to the buyer.
  
  
• Return on equity (ROE) helps the investor appreciate how efficiently a company employs its capital. It is computed by dividing the earnings before interest and tax (EBIT) to the company' equity. The higher this ratio, the more attractive the share.
  
  
• EBITDA and EV The operational earnings of the company, plus amortisation. EBITDA - Earnings Before Interest, Tax, Depreciation and Amortisation - can be used to analyse the companies that reinvest their profit. The best method is to divide the enterprise value (EV) to EBITDA.
  
  
• Liquidity ratios provide investors with information on the immediate liquidity of the company. It represents the ratio between the current assets and the current debts of the company and indicates to what extent the company is capable to cover its cash needs. A more accurate response is given by the so-called acid ratio. The inventory and the value of the unfinished production (which are harder to transform into cash) are deducted from the current assets, and the result is divided by the current debts of the company. Acceptable values vary from one industry to another, but as a rule, the acid ratio should be superior to 1.