According to market purists there are two basic ways of assessing a company: fundamental and technical analysis. In practice the former is best for showing which shares are worth buying and the latter for when to buy them.
Fundamental analysis involves evaluating everything about a company. Unfortunately there is too much to know. Ideally you would want to know not only the quality of the product/service, the state of the company’s customers and whether a few accounted for a large portion of sales, the competition, the competence of the board and senior management, the condition of finances and the vulnerabilities, the extent to which the business was reliant on a few markets, the economic cycle, exchange rates and labour relations, and so on.
There is no one simple and obvious way of deciding what a company is worth now, much less how its value is likely to move in the future. All the calculations are helpful sometimes, some most of the time, but none is consistently and reliably able to paint a definitive picture of the business. As different industries have varying payment customs, stock turnover times, capital needs, amounts retained for research and so on, the best way is to check what the norm is for the industry and see how far the company diverges from it. That in turn may take a fair amount of research from people like stockbrokers, trade associations and government.
Another problem is the shifting opinion about which ratio is the most reliable indicator. Obviously, when one factor becomes generally applied as the true measure of a company it distorts the picture. In other words, if dividend cover is taken as the true indication of a company’s worth, businesses are ranked by that criterion and a sensible investor would do best to look harder at other factors to see if the market has got its evaluation right.
The ratios mentioned here are the most common and are generally agreed to be helpful. Experts have a range of other calculations, indicators and ratios they find useful. Those can be handy but only long experience will show what indicators are personally useful, so it will be the more experienced investors who should investigate the serious textbooks on how to calculate and use more sophisticated models of stock market behaviour.