Tools of Fundamental Analysis
There are number of tools for Fundamental Analysis. Using these “tools of fundamental analysis” we can measure the key ratios of business to decide its financial health.
The actual value of the stock may not be reflected in the current price. It may get overvalued or undervalued. Fundamental analysis studies the health of the company in order to identify the intrinsic value.
Fundamental analysis helps you determine the fair price. Understanding various terms and key ratios related to fundamental analysis can help you in stock market even if you don’t plan to try fundamental analysis.
CHECK THE EARNINGS
Company’s earnings should be the first data an investor should consider. This can show you how much the company makes and how much will it be in future.
Even though its calculation is complicated, it is a key point to know about the company. Companies announce their earnings, every quarter, which is advantageous for the investors. For major companies, analysts closely follow their reports.
If a company reports rise in the earnings, it leads to a higher stock price. Market can hammer the stock if the earnings fall.
Earnings alone cannot give you much information. You have to integrate more tools to it if you wanna know about the stock value.
Some of the popular tools focus on earnings, growth and value in the market. Some of the important factors are given below. Most widely using tools for the fundamental analysis is listed below.
- Price-to-earnings ratio: This compares the stock’s current sales price to its per-share earnings.
- Price-to-sales ratio: This measures the total value of a stock in comparison to its revenues.
- price-to-book ratio: Also known as price-to-equality ratio, compares the book value of a stock to its market value.
- Earnings per share: EPS shows how much of profit is assigned to each shares of stock.
- Projected earnings growth: This estimates the stock’s one-year earnings growth rate.
- Dividend payout ration: This compares the payout dividends to the total net income of the company. Most of the PSU companies like HPCL offers better dividends in every year.
- Dividend yield: This compares the yearly dividends to the share price.
- Return on equity: This determines the company’s ability in generating returns on the investments.
These are some of the important tools that can be used in fundamental analysis.