Fundamental Analysis of Corporate Data

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Fundamental Analysis of Corporate Data

Fundamental analysis uses information from a corporation’s financial statements to determine the company’s intrinsic value. It takes all this company information and interprets it using a wide array of measurements.

Things To Know

  • Analysts use various figures taken from a company’s financial statements to determine what a company is worth.

Important ratios and other figures

  • Liquidity ratios measure the degree to which a company’s assets can be converted to cash without a loss of income.
  • The current liabilities of a company, such as accounts payable, get paid with its current assets, such as accounts receivable.
  • A current ratio divides a company’s assets by its liabilities. The higher the ratio, the better the company scores.
  • The difference between what a company has on hand (ready assets) and what it owes (liabilities) is called net working capital.
  • To find out how quickly a company’s customers pay their bills, analysts look at accounts receivable turnover. This is the ratio of a company’s net credit sales and its average accounts receivable.
  • Inventory turnover is the ratio of a company’s yearly sales to its inventory. High turnover is a good sign, indicating strong sales.
  • Dividing a company’s long-term debt by its net worth gives analysts the debt-to-equity ratio. A high ratio means a company is a risk because it needs its investment interest to pay off its debts.
  • To look at a company’s profits, analysts use net profit margin, which is simply a company’s net income divided by gross revenue. Net profit margin shows the percentage of each company dollar that made a profit.

Many factors go into the fundamental analysis of a security. You can evaluate securities by looking at company stock, dividend-paying ability, or growth potential. Either way, you will be well armed to invest with confidence.