Before investors decide to invest in securities, they try to evaluate them. Fundamental analysis is one way of doing this. It is therefore an important strategy for shareholders. In this article, you will learn how fundamental analysis works and what data is taken into account.
Fundamental analysis of shares - what is it?
This method can be used by investors to find out whether a share undervalued or overvalued becomes. Investors generally try to find undervalued shares and profit from a positive performance by selling shares at a higher price later on.
Fundamental analysis is a Special form of stock analysis. Various data is used to value a share. This includes, for example, company and economic data.
This form of share analysis is based on the following assumptionsIt is assumed that companies have an intrinsic value on the stock market and that share prices will approach this value in the long term.
Investors are therefore trying to find out intrinsic value and then compare it with the current share price. This gives an indication of a fair valuation or a possible undervaluation or overvaluation. This information can make a decisive contribution to a Well-founded purchase decision to meet.
Basically, two approaches can be distinguished here:
- "Top-down approach": Translated, this approach means "from top to bottom". The overall economic environment is considered first, followed by an examination of the sector and then details about the company in question.
- "Bottom-up approach": This approach describes the view "from the bottom up". It works the other way around. First, the company is analyzed in detail before the overall economic environment is considered.
Analysts generally use Qualitative and quantitative data back. Qualitative data is, for example, the competence of a company's management, but this is difficult to record. Quantitative data is therefore taken into account. These are much more specific, for example data on the respective group, and are therefore the focus of the analysis.
These fundamental analysis key figures are taken into account
The Kurs-Cashflow-Verhältnis indicates the sales surplus from a company's business activities. This ratio can be used to assess the earning power of a company. You can obtain this figure by dividing the current share price by the cash flow per share.
Price/cash flow ratio (KCV) = current turnover of a share / cash flow per share
A very well-known key figure is the Kurs-Gewinn-Verhältnis. Analysts can calculate this ratio by dividing the current price of a share by the company's earnings per share. This ratio is then used to compare it with the average P/E ratio for the sector.
Price/earnings ratio (P/E ratio) = current share price / earnings per share
The Equity ratio represents the ratio of a company's equity to its total capital. To obtain this value, you can divide the equity by the total capital and multiply the result by 100. The ratio provides information on how financially stable a company is. A higher equity ratio indicates that the company can repay possible debts in financially difficult times.
Equity ratio (ECG) = (equity of the company / total capital of the company) x 100
In order to Kurs-Buchwert-Verhältnis the current share price is divided by the book value per share. The book value is the difference between the assets and liabilities of the respective group.
Price-to-book ratio (P/B ratio) = current share price / book value per share
Conclusion: Fundamental Analysis Stocks - Definition
This particular form of equity analysis is known as fundamental analysis and largely takes quantitative data into accountas these can be collected and calculated more easily. The approach can be "top-down" or "bottom-up". This involves the chronological consideration of macroeconomic conditions in relation to the details of the respective group.
The analysis can provide clues, whether a share is fairly valued, overvalued or undervalued is. Shareholders try to identify shares that are as undervalued as possible in order to benefit from positive performance.
There are Numerous different key figuresthat you can take into account here. The best-known ratios include the price/cash flow ratio, the price/earnings ratio, the equity ratio and the price/book ratio.