Which financial ratios you use and why?

ChaosNantuko answered one year ago …

Its interesting that MNSL brought up the P/E ratio, because while i am a fan of using it along with some other metrics, and then comparing a "fair" P/E with the current P/E (similar to what buffet does, but i require a greater discount, and will make more assumptions), James P. O'Shaughnessy statistically proved that higher P/E ratios aren't actually more risky then low P/E ratios. I suspect the reason for this is that a company going from P/E of 10 to P/E of 9 dropped 10%, all else being equal, while a company goes from P/E of 50 to P/E of 45 has dropped the same 10%.
I personally look at earnings growth over the last 1, 3, and 5 years to see if its accelerating or decellerating. This metric is by FAR the most important of all(currently at least 20%).
I look at ROE (at least 20%)
I look at P/E ratio (completely depends on the earnings growth, and how sustainable i think the Earnings growth will be)
Profit Margin (at least 10%)
Market Cap. The smaller the better. Large companies usually have more trouble sustaining high growth rates then smaller ones do, and unless the growth rate is sustainable, my other calculations can be thrown off.
Those are the most important ones. the minor ones i later examine are
ROIC (minimum 20%)

The ones i don't look at are:
PEG (its just an extremely bad approximation. see my explanation here: http://www.tickerhound.com/questions/detail/2008046875b25)