Basics Of Fundamental Analysis
Fundamental analysis and particularly quantitative fundamental analysis is the searchlight you can use to shine a light on stocks before they catch fire.
@caniravkaria @saketreddy @MashraniVivek @SahilKapoor enlighten us with ur words.
Fundamental analysis and particularly quantitative fundamental analysis is the searchlight you can use to shine a light on stocks before they catch fire.
@caniravkaria @saketreddy @MashraniVivek @SahilKapoor enlighten us with ur words.
In simple, it measures the intrinsic value of a stock by studying various factors affecting it.
It is the value of a stock as determined by qualitative and quantitative methods of fundamental analysis. The intrinsic value might be higher or lower than its actual market value.
It is the value of a stock as determined by qualitative and quantitative methods of fundamental analysis. The intrinsic value might be higher or lower than its actual market value.
In quantitative analysis, you justify buying stocks by studying the underlying numbers that make a successful company. Simply put, stock prices and shares are numbers. Investment is about maximising those numbers and both these factors depend on the company’s numbers.
“XYZ has good numbers” is common-speak for investors while assessing the performance of a company. Quantitative analysis studies these numbers, particularly the financial details of a company, to improve the investor’s chances of hitting on a successful stock.
From earnings and financial reports to financial ratios, there are a number of tools used in the quantitative analysis as discussed below.
Source TickerTape / The Balance
Source TickerTape / The Balance
1. The balance sheet
The balance sheet of a company contains its assets and liabilities. You can also refer to it as a business’s net worth. Assets are company-owned and can include things like machinery, equipment, office space, copyrights, holdings and more.
The balance sheet of a company contains its assets and liabilities. You can also refer to it as a business’s net worth. Assets are company-owned and can include things like machinery, equipment, office space, copyrights, holdings and more.
Liabilities are what it owes to others like debt and equity. High debt or equity usually leads to long-term complications, while a growing company maximises current assets and acquires new ones.
2. Profit and loss statement
These statements consist of the revenue and expenses of a company. For example, Google’s revenues would be money received through advertisements and income device sales, play store tax, and so on.
These statements consist of the revenue and expenses of a company. For example, Google’s revenues would be money received through advertisements and income device sales, play store tax, and so on.
Its expenses would include outgoing money through payments towards employees, taxes to the government and so on.
Profit/Loss = Revenue – Expenses
Profit/Loss = Revenue – Expenses
3. Cash flow statements
They are detailed reports of cash that moved in and out of a business account in a financial year. Cash flow statements measure the cash-based transactions a company makes in a year, including investments.
They are detailed reports of cash that moved in and out of a business account in a financial year. Cash flow statements measure the cash-based transactions a company makes in a year, including investments.
Earnings
Simply put, earnings are the money that a company makes. However,you may know them as net income, bottom line or profit; they all mean the same.
Thus, you must invest in companies that have high earnings sustained over a period of time. Higher profits are good business.
Simply put, earnings are the money that a company makes. However,you may know them as net income, bottom line or profit; they all mean the same.
Thus, you must invest in companies that have high earnings sustained over a period of time. Higher profits are good business.
1. Quarterly earnings
Companies release quarterly reports detailing earnings, earnings per share and earnings from current operations for the most recent quarter. This indicates the current standing of a company.
Companies release quarterly reports detailing earnings, earnings per share and earnings from current operations for the most recent quarter. This indicates the current standing of a company.
2. Projected earnings
These are notoriously difficult to predict accurately. They are calculated by subtracting forecasted expenses from forecasted income. You can use a company’s financial statements from the current quarter to gauge how it might grow over the next ones.
These are notoriously difficult to predict accurately. They are calculated by subtracting forecasted expenses from forecasted income. You can use a company’s financial statements from the current quarter to gauge how it might grow over the next ones.
Financial ratios are another important tool in quantitative analysis. They offer a clearer view of the company’s financials concerning profitability, expenses, equity and so on.
1. Earnings per share (EPS)
These are the earnings of a company divided by the number of shares of the company. Look for companies with high earnings per share so that when you decide to sell, the price of each share will be substantial, boosting your returns.
These are the earnings of a company divided by the number of shares of the company. Look for companies with high earnings per share so that when you decide to sell, the price of each share will be substantial, boosting your returns.
2. Price to earnings ratio
This is the ratio of the share price and the EPS of a company. In essence, it indicates how much you need to pay to get Rs 1 of a company’s earnings. Ensuring a low P/E ratio will mean you spend less of your earnings for more of the company.
This is the ratio of the share price and the EPS of a company. In essence, it indicates how much you need to pay to get Rs 1 of a company’s earnings. Ensuring a low P/E ratio will mean you spend less of your earnings for more of the company.
3. Return on equity
Use return on equity shares to assess the profitability of a company generated by using the shareholders’ money. Divide the net income/earnings/profit by equity shares of investors to assess this metric.
Use return on equity shares to assess the profitability of a company generated by using the shareholders’ money. Divide the net income/earnings/profit by equity shares of investors to assess this metric.
4. Price-to-book ratio (P/B): Also known as the "price-to-equity ratio," the P/B compares a stock's book value to its market value. You find it by dividing the stock's most recent closing price by last quarter's book value per share.
Book value is the value of an asset as it appears in the books. It's equal to the cost of each asset minus cumulative depreciation
5. Dividend payout ratio
This compares dividends paid out to the shareholders to the company's total net income, and it also accounts for retained earnings or income that is not paid out but rather held onto for potential growth.10
This compares dividends paid out to the shareholders to the company's total net income, and it also accounts for retained earnings or income that is not paid out but rather held onto for potential growth.10
6. Dividend yield: This is the yearly dividend total compared to share price. It's given as a percentage. Divide payments per share in one year by the value of a share.11
7.Price-to-sales ratio (P/S): The P/S ratio values a company's stock price as compared to its revenues. It's also sometimes called the "PSR," "revenue multiple," or "sales multiple"
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