FUNDAMENTAL ANALYSIS

   

    

Fundamental analysis of a stock is used to determine the financial and occupational health of a company.

If you are planning for a long-term investment, it is always recommended doing a proper fundamental analysis of the stock before investing.

If you are involved in the market, you may also have the term 'technical analysis'. Well, technical analysis is a good way to find stocks for entry and exit times for intraday trading or short term.

You can make a good profit by using various technical indicators efficiently. However, if you want to find multi-bagger stocks to invest in that can give you good returns from year to year, fundamental analysis is the real tool you have to use.

This is because to get multiple returns, you need to invest in stocks for a longer period. Whenever technical indicators will show you signs of exit in a short-term or small setback, however, if the company is fundamentally strong, you will have to invest in that stock. In such cases, you have to be confident that the stock will rise and give good returns in the future and avoid short-term underperformance.

 Short-term market fluctuations, unavoidable factors or misunderstandings do not affect the fundamentals of a strong company in the long run.

An important topic of Fundamental Analysis

1)      Net Sales:

Net sales figures are an important measure of the company's ongoing growth and financial health.

It is the starting point for calculating many other important parameters such as operating profit and net profit.

2)       Operating Profit:

Operating profit or operating income is the balance of the company after deducting day-to-day operating expenses such as employee costs, rent, electricity, transportation, etc., of goods and costs sold from revenue.

It is basically a profit that a company earns from its core operations

3)      Earnings per share(EPS):

Neither income nor number of shares can tell you much about a company on its own, but when you add them, you get one of the most commonly used ratios for company analysis.

EPS tells us how much of the company's profit is assigned to each share of the stock. EPS is calculated as net income (after dividend on preferred stock) divided by the number of outstanding shares

4)      Price-to-earnings ratio (P/E):

This ratio compares the current selling price of a company's stock to its earnings per share.

5)      Price-to-sales ratio (P/S):

The price-to-sales ratio values a company's stock price compared to its revenue.

This is sometimes called PSR, Revenue Multiple or Sales Multiple.

6)      Price-to-book ratio (P/B):

It compares the ratio, which is also known as the price-to-equity ratio, book value of the stock from its market value.

You can arrive at this by dividing the stock's most recent closing price by the previous quarter's book value per share.

Book value is the value of an asset, as seen in the company's books. This is equal to the cost of each asset less cumulative depreciation.

7)   Return on equity:

Divide the company's net income by shareholders' equity to find out its return on equity. You can also hear this expressed as a return on the company's net worth.

  Price-to-earnings ratio (P/E):

This ratio compares the current selling price of a company's stock to its earnings per share.

  Dividend yield:

Annual dividend compared to share price. It is expressed as a percentage.

Divide the dividend payout per share in one year by the value of one share.