Fundamental analysis is an accounting or finance based term. The analysis is basically the summary of the financial statements of the business. The fundamental analysis is made in order to analyze the assets, liabilities and the revenue of a particular business. It takes the condition of the state of the business into account along with the other aspects like the taxes and other macroeconomic factors. A fundamental analysis proves as a very helpful weapon for knowing the current internal position of a business firm and its undertakings.
An analysis has normally two types of approach which are:
The process of fundamental analysis is made on the basis of both past and present data. There are several causes for which these analyses are prepared. The idea of forex trading in India has become prevalent. Here is a few objectives which leads to the preparation of a fundamental analysis.
• For conducting the stock valuation of the company and to predict the approximate upcoming changes in the price.
• For projecting the performance of the business firm.
• For evaluating the management of the business and for calculating its credit risks.
• For drawing out a value for the shares.
However, for calculation of the fundamental analysis, you can make use of a few popular tools. These tools are like a reflection to the earnings and the growth of the business in the market. Here are a few factors which well helps you to identify and get a better analysis of the business statement.
• Earnings per share: The calculation of EPS or earnings per share is done by the calculating the number of preferred sticks of the business and then dividing it by the number of shares which are outstanding.
• The ratio of price to earnings: The ratio between the present sales price of the stock of a company to its earnings on per share.
• The projected earning’s growth: The PEG portrays the growth rate of the company’s stock for the time period of a year.
• The ratio of price to sales: The ratio between the price to the sales helps in valuing the stock price of the company by comparing it with the revenue of the company.
• The ratio of price to book: The ratio between the price to the equity is called the price to book ratio. The ratio compression the book value of the stock with its value of the market.
•The ratio at which dividend is paid out: The ratio or dividend ratio compares the dividend which is paid to the stockholders with the total income of the company. The ration takes in the retained earnings or the income which is not to be paid out.
• The yield in the dividend: Here, again the same kind of ratio is taken into consideration. The yield is generally expressed in terms of percentage.
• The return on the equity: The net income of the company is divided with the equity of the shareholders.