Reply With Quotewith fundamental analysis i think u should also follow the technical analysis of stock keeping in mind the current scenario
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About LinkBacksFundamental analysis is a stock valuation method that uses financial analysis - that is, an analysis of a company's financial data - to predict the movement of that company's stock price.
A potential (or current) investor uses fundamental analysis to examine a company's operations and the market in which the company is operating to understand the stability and growth potential of that company. Company factors to examine include the dividends that company issues, the way a company manages its cash, the amount of debt a company has, and the growth of a company's costs and income.
The theory underpinning fundamental analysis is that, to truly make money in the long run, an investor must focus on the company itself rather than merely on the movement of its stock price. As Benjamin Graham and David Dodd say in their classic work "Security Analysis", in the short run, the market is a voting machine, not a weighing machine. An investor uses fundamental analysis to find the companies that are built to last.
Fundamental analysis adherents believe a company's "intrinsic value" will be eventually be reflected in the stock price through market forces, but that, while the market is efficient, some stocks (for any number of reasons) are either over- or under-valued in the short run. Therefore, the use of fundamental analysis can be viewed as a type of arbitrage.
To this end, earnings multiples, such as the P/E ratio, are used to determine value, where cash flows are relatively stable and predictable. The obvious caveat hereis that the P/E ratio is ultimately not an objective measure, because it must be interpreted. A high P/E ratio might be an overvalued stock, or it might be a company with high potential for growth. Other techniques include discounted cash flow, book value, and dividend yield analysis.
One method for combatting this interpretation problem is to use the valuation equations in the works of Aswath Damodaran or on web sites like ValueTool ([1]) that interpret equations such as P/E, P/BV, or FCFE as dollar values, so that they may be easily compared to the stock price.
with fundamental analysis i think u should also follow the technical analysis of stock keeping in mind the current scenario
ok, nice article, well done
While choosing a stock, following criteria's need to be analysed for choosing the correct pick
ROCE(Return on Capital Employed)
ROCE = profit after tax + interest earned on investment in long term funds by the company
Higher the ROCE , better is the company.
ROE(Return on Equity)
ROE = Profit After Tax/Shareholder funds.
Higher the ROE, better.
Last 10 years sales growth
Compare the growth percentage with the industry average to figure out if the company is a underperformer or outperformer
Free Cash Flow:
Free Cash Flow = Operational profit - capital expenditure.
Higher the free cash flow, better is the company.
Debt/Equity Ratio
Debt/Equity Ratio = Debt used for business/equity capital used for business
Ratio of > 2 is risky.
Working Capital
Working capital = Cash needed to run daily business.
Higher (Sales/Working capital) is a good sign.
Profit Margins
Net profit Margin = Net Profit/Sales.
Higher margin, better prospect.
Subbu.
http://investorskool.blogspot.com/
