How public data is used to do fundamental analysis?
Team Veye | 24-Oct-2021
Fundamental analysis is a way to assess the intrinsic value of a stock. It is a process of understanding the workings of a business at its most basic i.e., fundamental financial level. This is done by looking at various fundamental indicators and parameters.
Such analysis helps the investors in identifying key attributes of the company and analyze its actual worth, taking into account macro and microeconomic factors.
Fundamental analysis uses revenues, earnings, future growth, return on equity, profit margins, and other data to determine a company's underlying value and potential for future growth.
A few elements of quantitative fundamental analysis are EPS, P/E ratio, P/B ratio, Debt/Equity ratio and RoE ratio. How these are derived and the significance is briefly explained here;
Earnings Per Share is called EPS. EPS = Net Profit of The Company divided Number of Outstanding Shares. This is a measure of profitability.
The price to Earnings Ratio is called the P/E ratio. P/E = Price of Stock divided Earnings Per Share. This is a measure of valuation.
The price to Book ratio is called the P/B ratio. P/B = Price of Stock divided Book Value of Stock/Company. This is a measure of valuation for banking and financial companies.
The debt to Equity ratio is called D/E. Debt to Equity Ratio = Total Liabilities of the company divided Total shareholder’s equity. This is a measure of indebtedness.
Return on Equity Ratio is called RoE. Return on equity = Net Income of company divided by Shareholder’s equity. It is a profit measure that can be generated with the money that has been invested by its shareholders.
Market Cap, Enterprise value, TTM, NTM, FCF, EV/EBITDA are some more indicators that help you understand deeper about the company/stock. Every Industry has specific key metrics for valuation.
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