How to use fundamental analysis in Stock Trading – Share Market Profile?

How to use fundamental analysis in Stock Trading – Share Market Profile?

Before actually going ahead and investing in any stock it is extremely necessary that the intrinsic value of the stock should be known to the investor.

Sometimes the stocks are overvalued and other times they are undervalued. Before actually pooling money in a particular share it is important to determine the actual value.

A stock is said to be overvalued when the current price of a stock does not fall in line with its P/E ratio. Overvaluation of the shares takes place due to the sentiments of the market. There are others who invest on the basis of their instinct so they do not bother to know the actual value of the share they are actually investing in. The actual value of the shares is undervalued due to the financial valuation or performance of the company.

The investors find the value of the share by finding the P/B ratio. If the value is lower than 1 then the stock is said to be undervalued. When a stock sells at a price less than its intrinsic value it is said to be an undervalued stock.

A few factors which are looked into to understand the valuation of the company are

  1. The earnings of the company for the last few years
  2. If the company has generated any negative sentiments among the investors
  3. If the product offered by the company has a sustainable future
  4. A company’s credit rating with financial institutions
  5. The performance of the company during a slum market

Understanding the values of the company

Each company is constituted on some basic values. It is these values which are the basic driving force which helps the structure to move towards its envisioned goal. It is these shared values which allow the team to move in a structured manner towards

  1. An efficient financial and sustained performance
  2. Better employee engagement
  3. Customer-centric approach

It is this shared value that helps each employee to share common work ethics and attitude which leads to achieving shared goals. One of the reason the value of shares show a significant change is when there is a leadership and management change.

Study the financial reports of the company

The financial health of a company can be ascertained only by checking and studying its financial report of the company. There are many tools which the investors use before actually making any actual investment in the stock market. To understand the value of the stock the ratios are studied like

  • Profitability ratio
  • Liquidity ratio
  • Debt ratio
  • Efficiency ratio
  • Price ratio

Analyse the company’s competitors and future prospects

The value of a company’s share also depends on its competitive advantage over competition. There are many major players like Reliance, Apple, Coca cola which are strong brand names which drive their share value upward and their financial statements look good. With a marginal competitive advantage, the share prices tend to look great and give a certain advantage to the shareholders and the investors investing in the company.

Corporate policies and governance

Policies drive the company’s day to day decision making. Corporate policies lay down the everyday relationship and duties for the board of the company, the directors of the company and the shareholders. After careful scrutiny of the overall policies people can make out if the company is run ethically, transparently and according to the corporate regulations. Companies with a strong management base and strong financials find huge number of investors and they like to keep themselves invested for a long period of time.

The Cash Flow Statement

To understand a company’s financial health, it is important to understand the organisation’s cash flow position. Cash flow has been differentiated into three types.

Cash from Investing

It is the cash used for purchasing assets or received from the sale of assets and equipments.

Cash from financing

Cash received or given as funds borrowed from institutions or any other source.

Cash flow for Operations

This is the cash which is used for day to day business operations. Cash flow cannot be manipulated, to the keen eye, it foretells the revenue and the cash position of the company.

There are various pointers to be reviewed before people go ahead and make a real investment in shares. The shares of the market are dependent on so many factors. An investor needs to look into the performance of the sector and the competitors also before real-time investment. To understand these factors in a phased wise manner it is important to go through a scheduled training which is provided by Share Market Profile at Chennai. Want to learn more informatics strategies about stock trading Contact us: at 9585844338 or visit our Website: www.sharemarketprofile.com

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