Stock Market Notes –Fundamental Analysis
Fundamental Analysis is a technique to find out how strong the working of the company is, what kind of valuation it deserves, what price it must have and is the company right for buying its shares.
Before buying any business, you must know if it is fundamentally strong or not?
The important parameters that you have to look at are:
Market Capitalization – It is the net worth of the company.
It is some shares x the price it quotes.
According to the Market Capitalization, companies are classified into different categories:
1. Large-Cap: Market Capitalization is more than 10,000 crore
2. Mid Cap: Market Capitalization is more than 1000 crore.
3. Small Cap: Market Capitalization is less than 1000 crore
4. Micro: Market Capitalization is less than 100 crore.
Note: Whenever you feel that the network of the company is much more than its Market Capitalization, then that company is good for investment.
Whenever a person’s net holding value of any business is at least 51% of its current Market Capitalization, then that company becomes his own company.
Important Note: The risk is minimum when the Market Capitalization of the company is more and the risk increases when the Market Capitalization of the company decreases, at the same time: Multibagger returns can be expected from little Market Capitalization companies but from large-cap companies, one can expect only moderate yields.
Multibagger: Returns like 100%, 200% etc… in short term.
Short Term: 3 months – 12 months
Medium Term: 12 months – 36 months
Long term: 3 years to 10 years
Note: Longer is the holding term for the stock, safer it is for the investment, and it is very likely to give good returns.
Reference site for Fundamental Analysis of the company:
moneycontrol dot com —> type your company name in the ‘Get Quotes’ box.
P/E: Price / Earnings, also called Price-Earnings Multiple – It is the Market Capitalization of the company divided by the net profit of the company in the latest financial year.
Financial year: From April 1 to March 31 — in India
In the US – From Jan 1 to Dec 31.
The P/E ratio of the company should be as less as possible but should be above zero; then such companies are considered to be fundamentally strong.
A negative P/E means that the company has shown the net loss in the latest financial year.
EPS: Earnings per Share, it is the total Net Profit of the company for the most recent fiscal year regarding Rupees per share.
This figure should be as high as possible; then it is considered to be fundamentally strong.
Note: The actual growth of a company can be seen not through turnover or net profit but EPS only.
BV: Book Value – Book value of the company is the total asset value of the company per share.
BV of the company should be as high as possible when compared to its stock price; it is fundamentally strong because a company might have assets like the land bank, etc….
Asset: Property Value.
Market Lot: This figure is the minimum number of shares you can buy/sell. Most of the times it is 1.