Analyze The Stock or Company
Analyze The Stock or Company
Analyze The Stock or Company
What is Fundamental analysis? Fundamental analysis is basically done for long term and mid term investment which is also called as delivery based investment or trading. The main important aim behind is to study and understand the company in which you are planning to invest your hard earned money and get excellent returns. Generally hard core fundamental analysis is very and is out of the scope of this website, but if you are interested to learn then please contact us and we will provide you appropriate resources to study the same. How to analyze the fundamentals of the company? Basically one should be able to judge at least how the company has done in past years, its debit status, its current valuation, its future growth prospects, its earning capacity etc So that based on these terms he can at least decide whether to invest in this company or not. What you should look for in a company to invest? 1.About Company What the company is doing and what are its businesses? How is the current demand for their products and how the demand will be in future like in next 3 to 5 years and so? (It is difficult to analyze the future demand yourself so you can visit financial websites or contact us) 2.Earnings This is very important parameter. Broadly look into its last 5 or 10 years earnings whether the company has posted profits or losses. Its all about earnings. The bottom line is investors want to know how much money the company is making and how much it is going to make in the future. To find the earning status ratios used are EPS - Earning per share 3.Current valuation This is another very important factor which most of the investor forgets while doing their investments. Generally most of the investors invest at higher valuations of shares and when share prices start coming down then they keep worrying, so this should not happen. Before investing one should check the current valuation of the share price and invest only when the share price is at right price and not at over priced share. This is what happened in January 2008. Most of the people invested at very high valuations and later on the share prices started to correct (falling down). To find the current valuation of the stock the ratios used are PE ratio - Price to earning ratio Book value PB ratio - Price to book value ratio 4.Future earnings growth It is very important to analyze how the company is going to do in future. How will be its returns or its profits etc? Basically most of the investors invest in shares taking into consideration Companys future growth prospects. To find the future growth of the stock the ratios used are PEG ratio - Price to earning growth ratio Current EPS and Forward EPS Price to sales ratio 5.Debit status For any company to perform well in the future it is very important to be debt free or less debit because if company is having large debits like borrowings, loans then it becomes difficult for it to plan for any acquisitions, expansion plans take over plans, dividend payout and very important its most of the net profit goes in paying the interest and loans and other debits. So in other words if the company is having fewer debits or no debit then they are having lots of cash in hand and they are free to take any decision in coming future. To find the debit status of the company the ratios used are Debit ratio So to accomplish above parameters fundamental analyst follow certain ratios which are mentioned below.
Earnings
Earning Per Share - EPS EPS plays major role in investment decision. EPS is calculated by taking the net earnings of the company and dividing it by the outstanding shares. EPS = Net Earnings / Outstanding Shares (Nowadays you will get this ready made, no need for you to do calculation.) For example If Company A had earnings of RS 1000 crores and 100 shares outstanding, then its EPS becomes 10 (RS 1000 / 100 = 10). Second example If Company B had earnings of RS 1000 crores and 500 shares outstanding, then its EPS becomes 2 (RS 1000 / 500 = 50). So what is that you have to look in EPS of the company? Answer - You should look for high EPS stocks and the higher the better is the stock. Note - You should compare the EPS from one company to another, which are in the same industry/sector and not from one company from Auto sector and another company from IT sector. Before we move on, you should note that there are three types of EPS numbers: Trailing EPS - Trailing EPS means last years EPS which is considered as actual and for ongoing current year. Current EPS - Current EPS means which is still under projections and going to come on financial year end. Forward EPS - Forward EPS which is again under projections and going to come on next financial year end But the EPS alone doesnt tell you the whole story of the company so for this information, we need to look at some more ratios as following. Its not advisable to make your investment decisions based on only single ratio analysis. EPS is the base for calculating PE ratio. Importance of Earnings Earnings are profits. Quarterly or yearly companys increasing earnings generally makes its stock price move up and in some cases some companies pay out a regular dividend. This is Bullish sign and indicates that the companys is in growth. When the company declares low earnings then the market may see bearishness in the stock price and hence its share price starts deceasing and corrects further if the company doesnt provide any sufficient justification for low earnings. Every quarter, companies report its earnings. There are 4 quarters. Quarter 1 - (April to June and earnings will be declared in July) Quarter 2 - (July to Sept and earnings will be declared in Oct) Quarter 3 - (Oct to Dec and earnings will be declared in Jan) Quarter 4/final - Also called as financial year end - (Jan to Mar and earnings will be declared in April) Now by this time you would have understood how earnings are important for a stock price to move up or down. But depending only on earnings one should not make investment or trading decision. To make decision more risk free you should look into more tools as mentioned below so that your investment decision becomes more solid and you should get excellent returns in future. Conclusion - Keep a close watch on quarterly earnings and trade or invest accordingly or manipulate your investing. Following are the most popular and important tools/ratios to find excellent growth stocks which focuses on earning, growth, and value of the companys.
To make you understand more easily we have explained in very simple steps.
are full of profit. PB ratio is calculated as PB ratio = Share Price / Book Value per Share. Generally, if the ratio comes below 1 then it is considered as value investing. But this doesnt mean that the ratio coming to 1.2 or 1.5 is not value investing. It also depends on its future growth prospects.
That is P/S = Market Cap / Revenues or P/S = Stock Price / Sales Price per Share Conclusion - To find under valued stocks you can look for low P/S ratios. The lower the P/S ratio the better is the value of the company.
Companys announcements
Always keep a close watch on stocks you are interested to buy or you already bought for any mergers, take over, acquisitions, stake sells, new product launch etc. This would make the major impact on company. This is important point. So if you would like to have all these details and news very easily then you can keep visiting our home pagewww.stockmarketindian.com and watch latest news BOX which updates at every 15 to 30 minutes.
Final and last - very important Check out companys PAT (profit after tax) of every quarterly if you are short term to mid term trader and if you are long term investor then check out its yearly PAT. The company should have posted consistent growth.