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Relative Strength Index (RSI): RSI is a leading momentum indicator developed by J. Welles Wilder. It moves in a range of 0 to 100 and due to the range-bound feature, it is also known as an oscillator. As per Wilder's definition, a reading above 70 levels is considered overbought, whereas a reading below 30 is oversold. The default period of RSI is 14 days and can be used in different ways for analysis perspectives such as divergences, overbought, oversold, and centerline crossovers.
Return on equity: Return on equity (ROE) is calculated by dividing net income by shareholder’s equity. Return on Equity = Net Income/ Average Shareholder’s Equity Net income is the amount of income, net expenses, and taxes generated by a company for a given period. ROE measures how efficiently a company is generating profits. Higher ROE signifies that the company can utilize equity financing to generate profits. However, while reading ROE data one must also have an eye on the amount of debt on the balance sheet as debt funding could inflate ROE.
Return on invested capital (ROIC): Return on invested capital is a tool that measures a company's efficiency in capital allocation to profitable projects and investments. To obtain ROIC, you can divide net operating profit after tax (NOPAT) by invested capital. ROIC = NOPAT/Invested Capital Suppose a company's ROIC is higher than the cost of capital. In that case, it means the company is doing well, whereas an ROIC lower than cost of capital it may imply an unsustainable business model. ROIC can be used as a benchmark to compare companies.
Revenue growth: Revenue growth is the percentage change of sales made by a company in a particular period compared to the previous, identical period. For instance, revenue generated in one quarter compared to the previous quarter. Companies that can grow their revenue may signify that their products/services are finding new or repeat customers. Revenue can be increased by selling more products/services or by increasing the selling price of the product/service.
