Fundamental analysis is the art of analyzing a stock based on its intrinsic value. It is about examining the accounts to understand the accounting condition of a company. Fundamental analysts look at all possible benchmarks when analyzing a stock, but there are some indicators that are more important than others. When investing in stocks, understanding these five basic principles will help you make better investment decisions.
net profit margin
The net profit indicates how much a company earns for every euro in sales. There are two ways to calculate profit margin: gross profit margin and net profit margin. Gross profit is the total profit on the sale of goods including the cost of the goods sold, while the net profit margin is profit after taking into account all other costs that a company has, e.g. B. Research and development and marketing.
Investing in a company with a high net profit is a good idea because it means that the company has a significant pricing power, which means that it has the ability to raise prices, resulting in higher profits. The reason why the profit margin is an important basic indicator is that it is a good indicator of a company’s ability to generate cash. The more money a business makes, the more likely it is that it will still be around 10 or 20 years from now. A company with high profits can generate cash even in times of economic downturn as people will continue to need its products.
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The ratio of debt to equity
Leverage is a measure of the amount of debt a company has in relation to its equity. Leverage is important because it shows how durable a company’s debt is. The more debt a company has, the greater the risk of it going bankrupt. If a company has a lot of debt but little equity, it is not viable because it could go bankrupt at any time if there were significant cash flow problems. On the other hand, a company with small debt but high equity may not be able to expand as fast as it would like.
P / E
KGV (English: PEG code) stands for the price-earnings ratio. The price-earnings ratio is the current share price of a share divided by earnings per share. share (EPS) for the last 12 months. P / E is the most commonly used valuation measurement among fundamental analysts. It is a useful metric to compare the relative values of different stocks.
A high P / E means that the share price is higher than its earnings per share. stock, so it tends to be overpriced. A low P / E means that the share price is lower than its earnings per share. share, and therefore the stock tends to be cheaper. However, there are differences between the individual sectors, between growth and value equities as well as regional characteristics (USA – Europe) when it comes to the P / E threshold cheap / expensive.
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profit per shares
Earnings per share reflects the profitability of a company’s operations over a period of time. This is one of the most important figures in a company’s financial report. Earnings per share is determined by dividing a company’s net income by the total number of outstanding shares.
Earnings per Stock is an important basic indicator as it represents the amount of cash that a company generates each year. When a company has high earnings per. share, it has proven that it can generate significant cash flows. If a business is able to consistently generate a lot of cash, it is likely to have a long-term future.
Dividend is the dividend that the company pays per. share divided by the current share price. It is a very important basic indicator because it shows you how much safe return (as opposed to fluctuating price returns) you get from your investment.
Net income margin, leverage, P / E, earnings per. equities and dividends are the most important basic indicators. In addition, Current Ratio, Return on Equity, Return on Total Assets and Cash Flow are also useful basic indicators. To be successful in investing in the stock market, you need to be able to understand the underlying fundamentals of a company. To do this, you need to know how to read a balance sheet, income statement and cash flow statement. You also need to understand the general indicators of a company’s health, such as P / E, profit margin and earnings per share. shares. If you do all of these, you are well on your way to investing successfully!
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