The goal of analyzing a company's fundamentals is to determine the intrinsic worth of the company's stocks. For doing the same certain sets of inputs are required.All related economic, financial ,qualitative and quantitative factors are examined to determine true worth of company. Both discounted cash flow and net asset value can be used . Some ratios like price to earning Ratio , price to book value ratio can be calculated to know true worth of the Stock and compare it with its listed price on stock exchange. Such analysis helps traders and investors to understand is stock under-valued or over-valued. If a stock is undervalued then it is a good time to buy it at low price and if it is overvalued then it may be sold to book profits.
Following are some of the guidelines to begin with Fundamental Analysis of stocks:
- Annual reports, half yearly reports are released by the companies. Read them to understand about the income statement, profit statement and other necessary details.
- Determine the growth in profit statement of at-least past 3 to 5 years. This will help to know how stock is likely to perform in future.
- Check for debt-equity ratio. It implies that how much company's funds financing is through debt and equity shareholders. A low deb-equity ratio is considered to be safe for investors and traders.
- Collect company's historic data and evaluate it on various parameters like price-earning ratio, price value-book value ratio and more.
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