Important Factors in Fundamental Analysis

Fundamental analysis is the best mechanism for understanding the health, business, and forecasts of a company. It’s like technical analysis. It attempts to predict which shares are valued and which are not. The fundamental analysis presents a complete picture of the possible movements of both the stock market and individual stocks, with as many elements as possible examined. On the other hand, the technical analysis only looks at previous data on stock prices. Fundamental analysis involves reading and analyzing the company’s comparative advantage, annual reports, and financial statements to gain an understanding of competitors. When we talk of fundamental analysis, three things are studied inside it. 카지노사이트

Economy Analysis
Industry Analysis
Company Analysis

Economy Analysis
The Gross Domestic Product (GDP) is the first important parameter for Economy analysis. Higher GDP will be definitely better for any Country. and the second parameter is Inflation, too much inflation is bad, and too much Deflation is also bad, although a steady Inflation is not at all bad for any country. steady Inflation is a sine, or it’s linked to the steady growth of any company. and the third parameter is what is the foreign reserve of the country. healthy of the foreign reserve higher foreign reserve it is definitely good for any economy. Foreign reserves are built slowly and steadily if the balance of payments of any company is good. The performance of a company depends on the performance of the economy. It is the study of key macroeconomic variables that are expected to influence the performance of the company in the economy to estimate the trend of future corporate earnings. While monitoring economic analysis, an investor must take into account various factors …

The growth rate of national income: GNP, NNP, GDP are various measures of the total income of the country. The economy passes through various stages. We can say that the economic cycles are depression, recovery, boom, and recession. An investor should consider these economic cycles when investing in shares.
Inflation: Inflation In economics affect the performance of a company adversely. industry and company prosper during the time of low inflation.
Interest rate: Higher interest rates result in a higher cost of production which leads to lower profitability.
Government revenue expenditure and deficit: Expenditure by the government stimulated the economy by creating jobs and generating demand. Government expenditure exceeds its revenue that occurs deficit known as the budget deficit.
Exchange rate: A depreciation of the puree improve the competitive position of Indian Products in a foreign market that stimulates export but it makes imports more expensive.
Infrastructure: Bad Infrastructure leads to inefficiency and low productivity.
Mansoon: There is a linkage between agriculture and industry. Company performance depends on the performance of agriculture.
Economic and political stability: No industry can grow in the middle stuff political turmoil.
Industry Analysis
Industry analysis is a Market Evaluation device utilized by businesses and analysts to comprehend the competitive dynamics of an industry. It encourages them to get a feeling of what’s going on in an industry, e.g., demand-supply statistics, degree of competition within the industry, state of competition of the industry with other emerging industries, future prospects of the industry taking into account technological changes, credit system within the industry, and the impact of external factors on the industry. In short, industry analysis is a viable process that enables a company to understand its position relative to other companies producing similar products or services. It is a systematic process of gathering and analyzing information about the industry on a global and domestic basis. Factors include economics, trends, social and political factors, and changes in technology, and rates of change. If the company understands the forces operating in the overall industry, it will help in formulating strategies and making strategic plans. Industry analysis empowers small business owners to identify the threats and opportunities facing their businesses and focus their resources on developing unique capabilities that can lead to competitive advantage. There are five strengths developed by popular theorist Porter that help in efficient industry analysis and enable the company to gain a competitive advantage. 안전한카지노사이트

In the analysis, the investor emphasizes the trends of a particular industry and their effects on individual companies. Industry analysis allows gaining valuable insights about the industry and understanding the situation of an individual company compared to its peers.

Company Analysis
Company analysis covers the evaluation and examination of a companies’ management or marketing activities, financial health and prospects, and strengths and weaknesses. Under this analysis, the investor conducts research on an individual company and emphasizes specific details such as business model, strengths, competitive advantage, risk, effort, etc.

Along with the cash-generation intensity of the business, it is also necessary to know how the company makes a profit or what the margins of the business are. What products or services does the company have and what are the customers.

Basically, the fundamental analysis includes financial and principal ratios. Fundamental analysis is a specific valuation process to forecast the value of any stock. It introduces estimates based on specific factors consistent with the stock, including.
The global industry
Company financial statements
Company press releases
Competitor analysis
News releases
Domestic political conditions
If some of the fundamental indicators of a company show the data to have a poor impact, it reflects the share price negatively. On the other hand, if there is a positive data release, such as an outstanding earnings report, for example, it can boost the stock price of the company concerned.

The global industry:
There are some identifiable features in the global industry. Generally speaking, they function as information technology and communication infrastructure. The products or services the industry provides require practically no modification to serve customers in all business areas. For example, razors serve an all-inclusive need, and practically no change is required to sell in any market. Trade ensures profitable economies of scale by serving the worldwide market.

Company financial statements:
Financial statements reveal the financial results of a particular date and the financial position of a particular date. Which are prepared and published by corporate enterprises for the benefit of various stakeholders which including investors, tax authorities, government, employees, etc.

Company press releases:
Issuing a public relations announcement through the news media and other social platforms aimed at making the public aware of the company’s developments.

Competitor analysis:
A competitive analysis is a process of identifying their competitors and evaluating their strategies to determine their strengths and weaknesses relative to their own business, product, and service. The competitive analysis aims to gather the intelligence necessary to find a line of attack and develop its go-to-market strategy.

News releases:
Good earnings reports, a new product announcement, a corporate takeover, negative news, professional swap-gossip news, and positive economic indicators, etc all types of news increase trading pressures and are helpful for increasing/decreasing stock prices.

Domestic political conditions:
Domestic Political conditions of a country impact any corporate organization and can also introduce a risk condition that can cause the business to suffer losses or compromise over its profit stream. The political environment can change because of the policies and actions of the prevailing government at every level, federal to a local level. It is very important that in order to maintain a healthy business environment in a business a plan should be made for variability in the policies and regulations of the government. 카지노사이트 추천

Some of the factors to be observed while performing the fundamental analysis are as follows:
1] Operating Profit Ratio
Operating profit margin is a profitability ratio that represents the percentage of profit a company generates from its operations, before deducting taxes and interest charges. It is calculated by dividing the operating profit by total revenue and expressing it as a percentage. The Operating profit margin is also known as EBIT.

2] Net Profit
One of the best measures for the success of any business is to calculate its net profit. We also know the net profit of a company as its net income, net earnings, profit after tax (PAT), or the bottom line. It shows the financial position of a company as all the expenses of the company are paid from the total revenue of the company.

3] Profit Margins
The earnings numbers of a company do not tell the whole story. Increasing earnings are good, but if costs rise more than revenue, it is not good for the health of the company. The profit margin measures how much income the company is making from each rupee of its revenue. Thus, this measure is very useful for comparing peer companies within the same industry. A higher profit margin shows that the company has better control over its costs than its competitors. Profit margin is always expressed in percentage. Suppose the profit margin of a company is 10%, this means that the company has a net income of Rs 1 for every Rs 100 of its revenue.

Profit margin = Net income/Revenue

4] Return on Equity Ratio
Return on Equity (ROE) is a measurement that determines how efficient a company is when using the shareholder’s equity. It is a ratio of revenue and profits to shareholder’s equity. The company’s profitability can be measured by how much profit the company earns with the money invested by its shareholders. You calculate the ROE by dividing the company’s Net income (annual) by the shareholder’s equity.

Return on equity = Net Income / Shareholder’s Equity

Shareholder’s Equity = Equity Share Capital + Reserve & Surplus

For example, the ABC, Corporation Ltd. company reported a net profit (before dividend) of Rs. 1,00,000 and issued dividends of Rs. 10,000 during the year. ABC, Corporation Ltd also had 500, Rs.50 par common shares outstanding during the year. Then ROE would be calculated like this:

ROE = (1,00,000 – 10,000 / 500×50)×100
ROE = 3.6%
This means that shareholders will earn Rs 3.6 for every rupee invested in the company. ROE gives us a complete picture of the earning potential of a company and a good parameter for comparison.

5] Price to Earnings (P/E) Ratio
The price-to-earnings ratio shows the company payouts compared to the price of the stock. In other words, the P/E ratio shows whether a share of stock pay well compared to its price. Price-to-Earnings (P/E) also helps in the comparison between companies. High P/E shows that the stock’s priced relatively high to its earnings, and companies with higher P/E, therefore, seem more expensive. Additionally, this measure, as well as other financial ratios should also be compared to similar companies with the same sector or similar historical P/E. We calculate the P/E ratio by dividing the price per share by the EPS;

For example, the ABC, Corporation Ltd share is currently trading at Rs. 500 a share and its earnings per share for the year is Rs. 10. Its P/E ratio would be calculated like this:

P/E Ratio = 500 / 10
P/E Ratio = 50
The company’s ratio is 50 times. This means that investors will get 50 rupees (if sold in the market) for every rupee they have invested.

6] Price-to-Book (P/B) Ratio
The price-to-book (P/B) ratio is an indication that shows how much the stock’s market value worth compared to the book value of the company, and also states that you are paying too high a price for the stock would be the leftover value if the company was to wind up today. A higher P/B ratio greater than 1 shows that the share price is higher than the companies for which the asset will be sold. This difference refers to what investors think about the company’s future growth potential. It can be calculated as-

Price-to-Book (P/B) Ratio = Current Market Price per Share / Book Value per Share
P/BV Ratio = 10 / 5
P/BV Ratio = 2

For example, the ABC, Corporation Ltd company has 10,000 shares that are trading at Rs.500 per share. The company reported Rs. 50,000 of net worth on their balance sheet this year. The price to book ratio of the company will be as follows:

Book Value per Share = Net Worth / No. of Equity Share
Book Value per Share = 50,000 / 10,000 = 5
7] Earning per share (EPS)
Earning per share is a measure that investors observe all the time. It represents the amount the company is earning on every share. A company’s EPS can be compared with its past performance and with peer companies in the same industry. This can be used to determine which portion of the profits the company allocates to each outstanding share.

Earnings per Share = (Net Income – Preference Dividend) / No. of Equity Shares

For example, the ABC, Corporation Ltd company has 10,000 shares and reported a net profit (before preference dividend) of Rs. 1,00,000 and issued preference dividends of Rs. 10,000 during the year. The company’s EPS would look like this:

Earning per share (EPS) = (1,00,00-10,000) / 10,000
= 90,000 / 10,000 = 9
8] Dividend Yield
Dividend Yield indicates how much dividend the company is paying to shareholders against its market value. You calculate the Dividend Yield by dividing the dividend per share by the Market price per share. Suppose that company ABC, Corporation Ltd and XYZ, Corporation Ltd whose share prices are ₹ 500 and ₹ 100 respectively, the face value of the companies is ₹ 10 if both companies declare ₹ 10 per share dividend. So the Dividend Yield is:

Dividend Yield for ABC = (10/500)×100 = 2%

Dividend Yield for XYZ = (10/100)×100 = 10%

The market price of the company is twice that of the book value. This means that the company’s share costs twice as much as the net worth reported on the balance sheet. Also, this company would be considered overvalued because investors are willing to pay more for the company’s shares than they are worth.

Leave a Reply