Fundamental Analysis

Below are concise yet comprehensive explanations aimed at enhancing your understanding of Fundamental Analysis.

Fundamental Analysis:

• Focusing on: A company’s financial health, future prospects, and industry trends to assess its intrinsic value.
• Factors: Revenue, earnings, debt, management team, competitive landscape.
• When to Use: Long-term investing, selecting undervalued companies with solid growth potential.
• Example: You research a company with a P/E ratio of 15 compared to its industry average of 20, suggesting potential undervaluation. You calculate its EPS to be $2 and its annual dividend to be $1, resulting in a 6.67% dividend yield (attractive for income investors).

Calculations:

• Dividend Yield: Imagine a stock priced at $50 with an annual dividend of $2. Dividend Yield = $2 / $50 x 100% = 4%.
• P/E Ratio: If the same stock has an EPS of $10, its P/E Ratio = $50 / $10 = 5.
• Price-to-Earnings-to-Growth Ratio (PEG Ratio): Considers both valuation and growth potential. PEG Ratio = P/E Ratio / Expected Growth Rate. A PEG ratio below 1 suggests potential undervaluation.

Category	Indicator	Term	Benefit	When to Use	Example	Calculation
Valuation	P/E Ratio	Price-to-Earnings Ratio	Measures relative valuation based on earnings	Long-term investment, identify potentially undervalued stocks	Company A: P/E 15 is better if industry Avg is 20	Stock Price / EPS
Valuation & Growth	PEG Ratio	Price-to-Earnings-to-Growth Ratio	Considers valuation and growth potential	Long-term investment, identify undervalued growth stocks	Company A: PEG 0.75 (below 1 suggests potential undervaluation)	P/E Ratio / Expected Growth Rate
Income	Dividend Yield	Annual dividend divided by stock price	Income generation, identify high-yielding stocks	Income investors seeking regular income	Company A: Dividend Yield 5%	Annual Dividend / Stock Price x 100%
Financial Health	Debt-to-Equity Ratio	Total debt divided by shareholder equity	Measures financial health and risk	Long-term investment, assess financial stability	Company A: Debt/Equity 0.5 (lower is better)	Total Debt / Total Equity
Valuation	Price-to-Sales Ratio (P/S Ratio)	Stock price divided by sales per share	Valuation relative to revenue	Long-term investment, compare across industries	Company A: P/S 2 (industry avg: 1.5)	Stock Price / Sales per Share
Profitability	Return on Equity (ROE)	Net income divided by shareholder equity	Measures profitability and efficiency	Long-term investment, assess company’s ability to generate profit	Company A: ROE 15% (industry avg: 10%)	Net Income / Total Equity

Key Terms:

• Stock: A share of ownership in a company, representing a slice of its value.
• Investor: An individual or entity that buys and holds stocks, seeking profit through capital appreciation or dividends.
• Broker: Your financial intermediary, facilitating trades and providing investment advice (optional).
• Stock Exchange: A marketplace where investors buy and sell stocks (e.g., NYSE, NASDAQ).
• Market Capitalization: The total value of a company’s outstanding shares (stock price x number of shares).
• Dividend: A portion of a company’s profit distributed to shareholders.
• Dividend Yield: The annual dividend divided by the stock price, expressed as a percentage (Dividend / Stock Price x 100%).
• Earnings per Share (EPS): A company’s profit divided by the number of outstanding shares.
• Price-to-Earnings Ratio (P/E Ratio): The stock price divided by the EPS, indicating how much investors are willing to pay per dollar of earnings.
• Bull Market: A period of sustained price increases across the market.
• Bear Market: A period of prolonged price declines.
• Portfolio: A collection of different investments held by an individual.

Remember:

• Start small: Begin with a manageable amount of money and gradually increase your investment as you gain confidence.
• Diversify your portfolio: Spread your investments across different companies and sectors to minimize risk.
• Do your research: Never invest in a company you don’t understand.
• Be patient: The stock market fluctuates, so don’t expect overnight riches.
• Seek professional advice: Consult a financial advisor for personalized guidance.

Best wishes,
The Learn and Permits Support Staff
Contact@LearnCertify.com
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