Fundamental Analysis Wiki

Fundamental analysis is the process of valuing companies by reviewing the financial statements, the company\'s management and the company's future business prospects.

Fundamental Analysis Indicators Used:

Book Value
Book value or carrying value is the value of an asset according to its balance sheet account balance. For assets, the value is based on the original cost of the asset less any depreciation, amortization or impairment costs made against the asset. Traditionally, a company\'s book value is its total assets minus intangible assets and liabilities. However, in practice, depending on the source of the calculation, book value may variably include goodwill, intangible assets, or both. When intangible assets and goodwill are explicitly excluded, the metric is often specified to be "tangible book value".
Debt to Equity Ratio
The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of equity and debt used to finance a company\'s assets. This ratio is also known as Risk, Gearing or Leverage. It is equal to total debt divided by shareholders equity. The two components are often taken from the firm\'s balance sheet or statement of financial position (so-called book value), but the ratio may also be calculated using market values for both, if the company\'s debt and equity are publicly traded, or using a combination of book value for debt and market value for equity.
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend.
Fixed Assets
Fixed asset, also known as property, plant, and equipment (PP&E), is a term used in accounting for assets and property which cannot easily be converted into cash. This can be compared with current assets such as cash or bank accounts, which are described as liquid assets. In most cases, only tangible assets are referred to as fixed.
Goodwill is an accounting term used to reflect the portion of the book value of a business entity not directly attributable to its assets and liabilities; it normally arises only in case of an acquisition. It reflects the ability of the entity to make a higher profit than would be derived from selling the tangible assets. Goodwill is considered an intangible asset.
Intangible Assets
Intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, which are created through time and/or effort and that are identifiable as a separate asset. There are two primary forms of intangibles - legal intangibles (such as trade secrets (e.g., customer lists), copyrights, patents, trademarks, and goodwill) and competitive intangibles (such as knowledge activities (know-how, knowledge), collaboration activities, leverage activities, and structural activities). Legal intangibles are known under the generic term intellectual property and generate legal property rights defensible in a court of law. Competitive intangibles, whilst legally non-ownable, directly impact effectiveness, productivity, wastage, and opportunity costs within an organization - and therefore costs, revenues, customer service, satisfaction, market value, and share price. Human capital is the primary source of competitive intangibles for organizations today. Competitive intangibles are the source from which competitive advantage flows, or is destroyed. The area of finance that deals with intangible assets is known as Intangible Asset Finance.
Intrinsic Value
Intrinsic value refers to the value of a security which is intrinsic to or contained in the security itself. It is also frequently called fundamental value. It is ordinarily calculated by summing the future income generated by the asset, and discounting it to the present value.
Margin of Safety
Margin of safety (safety margin) is the difference between the intrinsic value of a stock and its market price.
Net Current Asset Value
Net current assets are those assets immediately available after subtracting Current Liabilities from Current Assets.
Undervalued Stock
An undervalued stock is defined as a stock that is selling at a price significantly below what is assumed to be its intrinsic value (finance). For example, if a stock is selling for $50, but can be determined to be worth $100 based on predictable future cash flows, then it is an undervalued stock.
Working Capital
Working capital, also known as net working capital or NWC, is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.