Financial statements are the cornerstone of fundamental analysis. It has three key financial documents: the income statement, balance sheet, and statement of cash flows. Publicly listed companies are required to follow financial reporting rules of the country in which they are listed. Most of these stock exchanges and financial rules in the country require companies to … [Read more...] about Relevance of financial statements in fundamental analysis
financial statement analysis
What is fundamental analysis and why it’s used by investors
Fundamental analysis is a process of analyzing every aspects of a company's operations in order to determine the value of a stock, known as intrinsic value of a share. This means, it will let you know what you are getting when you buy a stock. By using fundamental analysis, you can find out whether a stock is cheap or expensive by comparing its current market price to the … [Read more...] about What is fundamental analysis and why it’s used by investors
Financial tools to help you assess company’s liquidity position
Liquidity position of a company will tell you whether the organization has staying power in tough times. Analyzing company's liquidity position involves examining the relationship of current assets and current liabilities and in short run, how well a company can manage and fulfill its short-term obligations. In absence of adequate cash flow to the business, company may go … [Read more...] about Financial tools to help you assess company’s liquidity position
Why and How to calculate return on equity or ROE of a company
Assets are financed in part by liabilities and in part by equity. Value investors are not interest to know how much return the company gets from its total investment (debt plus equity), but rather they are interested in the return the company can generate on their shareholdings in the company. To measure how the stockholders are fared during the year, return on equity or ROE is … [Read more...] about Why and How to calculate return on equity or ROE of a company
Why and How to calculate current ratio
Investors judge a company by using various methods to know whether a company has adequate working capital. In this regard, current ratio is more useful than the net working capital. Current ratio (CR) is calculated by dividing current asset (CA) by current liabilities (CL). CR = CA / CL What is Current Assets and Current Liabilities To classify a particular asset as … [Read more...] about Why and How to calculate current ratio
Income statement or Profit & loss account in financial statements
To present financial position for a period to stakeholders, companies prepare financial statements. It has four main parts: the balance sheet, income statement, cash flow and retained earnings / shareholders equity. In this article, we will be looking at the income statement: what it is, how its prepared and what is its purpose. Income statement is the first thing … [Read more...] about Income statement or Profit & loss account in financial statements
What is Operating cycle of a business
In a business, operating cycle is the length of time a company takes starting from the time when cash is invested in goods and services to the time that investment produces cash. This means in a business, it comprises three phases: Purchase raw materials in cash or credit and produce goods.Sell goods for cash or in credit.Collect cash from credit sales, settle short-term … [Read more...] about What is Operating cycle of a business
What is price to book ratio and how to calculate it
P/B or Price To Book Ratio is calculated to compare market price of a stock with its book value. Its calculated by dividing current market price of the share by the book value per share. Its also called as market-to-book ratio. Investors widely used P/B ratio to find out hidden gems which are low priced but has exceptional return potential. To calculate, you are first … [Read more...] about What is price to book ratio and how to calculate it
How to calculate Working capital of an organisation
Working capital is the difference between company’s total current asset and the total current liabilities. In simplified terms, It's the amount of current asset that is left out if all current liabilities are paid. Working Capital = Current Assets - Current Liabilities Bankers, financial institutions and other creditors compute working capital to know the short-term … [Read more...] about How to calculate Working capital of an organisation
How to calculate Price earnings to growth ratio – PEG
PEG or price/earnings to growth ratio is simply calculated by taking P/E ratio and dividing it by earnings growth rate. Price to earnings is the most important component of PEG calculation. Price to earning ratio is calculated by taking current market price of the stock and dividing it by the earnings per share or EPS. Normal Price to earnings ratio is not considering future … [Read more...] about How to calculate Price earnings to growth ratio – PEG