Investing has a set of four basic elements that investors use to break down a stock's value. In this article, we will look at four commonly used ratios and what they can tell you about a stock. Financial ratios are powerful tools to help summarize financial statements and the health of a company or enterprise. -Financial statements can be used by analysts and investors to compute financial ratios that indicate the health or value of a company and its shares.-P/E, P/B, PEG and dividend yields are four commonly used metrics that can help break down a stock's value and outlook.-Any single ratio is too narrowly focused to stand alone, so combining these and other financial ratios gives a more complete picture. (1) The Price-to-Book Ratio (P/B) Made for glass-half-empty people, the price-to-book (P/B) ratio represents the value of the company if it is torn up and sold today. This is useful to know because many companies in mature industries falter in terms of growth, but can still be a good value based on their assets. The book value usually includes equipment, buildings, land and anything else that can be sold, including stock holdings and bonds. With financial firms, the book value can fluctuate with the market as these stocks tend to have a portfolio of assets that goes up and down in value. Industrial companies tend to have a book value based more in physical assets, which depreciate year over year according to accounting rules. In either case, a low P/B ratio can protect you - but only if it's accurate. This means an investor has to look deeper into the actual assets making up the ratio. (2)Price-to-Earnings Ratio (P/E) The price to earnings (P/E) ratio is possibly the most accurate of all the ratios. If sudden increases in a stock's price, then the P/E ratio is the steak. A stock can go up in value without significant earnings increases, but the P/E ratio is what decides if it can stay up. Without earnings to back up the price, a stock will eventually fall back down. The reason for this is simple: A P/E ratio can be thought of as how long a stock will take to pay back your investment if there is no change in the business. A stock trading at $10 per share with earnings of $5 per share has a P/E ratio of 2, which is sometimes seen as meaning that you'll make your money back in long years if nothing changes. The reason stocks tend to have high P/E ratios is that investors try to predict which stocks will enjoy progressively larger earnings. An investor may buy a stock with a P/E ratio of 30 if he or she thinks it will double its earnings every year (shortening the payoff period significantly). If this fails to happen, the stock will fall back down to a more reasonable P/E ratio. If the stock does manage to double earnings, then it will likely continue to trade at a high P/E ratio. (3) The PEG Ratio Because the P/E ratio isn't enough in and of itself, many investors use the price to earnings growth (PEG) ratio. Instead of merely looking at the price and earnings, the PEG ratio incorporates the historical growth rate of the company's earnings. This ratio also tells you how your stock stacks up against another stock. The PEG ratio is calculated by taking the P/E ratio of a company and dividing it by the year-over-year growth rate of its earnings. The lower the value of your PEG ratio, the better the deal you're getting for the stock's future estimated earnings.