What are the risks of stocks?

It is important to note that every sharp investor wants to minimize risk while maximizing profit potential. Yet conventional investment theory tells us that to increase returns, you have to increase risk.rnIf you are in this position, you desperately want to learn all the techniques to make large profits without risking much. The next indicator to look for is cash per share or working capital per share. Working capital is current assets minus current liabilities. These assets are near to cash or will generally be turned over in one year: receivables, inventory and the like. To measure the health of working capital, divide current assets by current liabilities to get the "current ratio." A current ratio of two to one or better usually indicates a solid company. As long as the company does not have any long term debt, or at least none coming due shortly, the company is solvent and should be around for a while - little or no bankruptcy risk.rnNext, we look for low price-earnings (P/E) ratios. In my opinion, buying high P/E stocks to chase growth companies is inviting real risk. If the company disappoints in earnings, not only will the stock drop from lower earnings, the P/E ratio will deflate as well, giving you a double hit. OK, so you have found a company that is selling at or below book value with a current ratio better than 2:1, and a low, low P/E. It may be that the stock will not go down, but will that stock go up? Picking growing industries and growth companies is more than I can tell you here, but rnthere are two simple things you can look for first: (1) Is the company buying its stock, or has it bought its stock at about this price, andrn (2) are the insiders making hefty purchases of their stock?rnNext, you can look at the ratio of revenues or sales to market values or the dollar amount of sales per share. Generally speaking, the company with a relatively high amount of sales per market value or sales will have more action on the upside. That company has more revenues to make profits from.