How To Analyze Stock Fundamentals And Their Indicators – A Beginner’s Guide to Performing Stock Fundamental Analysis (Updated): Stock fundamental analysis is used to determine a company’s financial and operating health. If you are planning to invest for the long term, it is recommended that you do a thorough stock analysis before investing.
If you are involved in the market, it may also be called “technical analysis”. Technical analysis is a good approach to find stocks during entry and exit for insider trading or short-term trading. Here we look at charts, trends and patterns. You can make good money by effectively using various technical indicators. But if you want to find high-value stocks to invest in that can give you good returns year after year, fundamental analysis is the tool you should use.
How To Analyze Stock Fundamentals And Their Indicators
Because to get more returns (say 5k or 10k) you should invest in stocks for long term. Even if the technical indicators show signs of a short-term exit during a downtrend or a minor pullback, if the company’s fundamentals are solid, you should invest in those stocks. In such cases, the stock will grow and generate good returns in the future and short-term inefficiency should be avoided. Short-term market fluctuations, unavoidable factors or disasters will not affect a strong company’s fundamentals in the long run.
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In this post, we will discuss fundamental stock analysis (how to examine a company’s fundamentals). Here are some guidelines to help you choose some really strong companies if you follow the rules.
Here are six important steps to analyze the fundamentals of an Indian stock company. They are very simple yet effective in finding reliable companies. Here it is:
There are more than 5,500 stocks in one Indian stock. If you start reading the financial statements (ie balance sheets, income statements, etc.) of all these companies, it could take years. Most companies’ annual reports are around 200-300 pages. You don’t have time to read every company report.
The best approach is to first shortlist a few good companies based on a few criteria. Then, explore these reviewed companies one by one to choose the one that’s right for you.
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For initial screening of a stock, you can use Price-to-Earnings (PE), Price-to-Book Value (PBV), ROE, CAGR, Current Ratio, Dividend Yield, etc. You can use various financial indicators such as If you want to know more about the best financial ratios to test, here is an article on 8 financial ratio analysis that every investor should know. In short, you should use a variety of financial indicators for initial analysis.
Then use Trading Brains Screener, Screener.in, Investing.com, Tickertape etc. to screen stocks using financial indicators. You can use various financial websites like Here’s an example of how to screen stocks with the Trading Brain screen.
For example, if you want to filter out companies with a PE ratio between 8 and 20 and a dividend payout ratio between 1 and 3%, and an average return above 12% over the past three years, you can choose the following criteria. Trade Brain Screener will shortlist stocks and list companies based on specified criteria.
Also, you can add ROCE, Current Ratio, ROA, P/Book Value, etc. to your criteria. you can add In addition, you can use any financial ratio you like to review stocks that suit your needs. Here’s a guide on how to select companies using the Shopping Brain Screener:
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Once you’ve reviewed companies based on the above criteria, the next step is to search for them. It is important to understand the company you are investing in. Because if you don’t, you won’t be able to determine whether the company is doing well or badly, whether the company is making the right decisions about its future goals; how well or poorly their competitors are doing compared to them, and more importantly, whether to hold or sell the stock.
Therefore, it is important that you understand the company. Products/services, people running the company (founders/promoters), management effectiveness, competitors, etc. questions like they should be familiar to you.
An easy way to understand the company is to visit its website. Go to the company’s website and click on “About”, “PRODUCTS”, “PROMOTERS/BOARD”, etc. check out the page. Read that company’s mission and vision statement. Also, if you can find the company’s annual report, download and read it. This report will provide in-depth knowledge about the company.
Also, if you can understand the company’s products, services, and vision and make them attractive, move on to the next step. Otherwise, ignore this company.
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Once you understand and are attracted to the company, you should examine the company’s financials, including the balance sheet, income statement, and cash flow statement.
As a general rule, revenue/sales, net income and margin growth over the past five years can be considered a healthy sign for a company. After that, operating expenses, expenses, assets, liabilities, etc. You should also check other financial information such as
Now, where can you find the financials of the company you want to invest in? One of the best websites to check company accounts is Trade Brain Portal. Steps to Check Company Financials on Trading Brain:
Step 2: Enter the company name in the search box. Company details include key figures, income statement, balance sheet, cash flow, quarterly report, peer competition, etc. will open as
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In order to choose a good stock for long-term investment, it is necessary to study the financial position of the company carefully. If you don’t know how to read company financial statements, check out this course on Financial Statements and Ratio Analysis for Beginners.
A company’s total debt is one of the biggest factors to check before investing in a stock. A company cannot reward its shareholders if it has good debt. First you have to pay off the loan and pay the interest on the borrowed money. In short, avoid companies with a lot of debt.
As a general rule, you should always invest in companies with a debt-to-equity ratio of less than one. You can use this ratio when you first look at a stock or check it when reading a company’s financials.
Additionally, other red flags in a company could be a persistent decline in revenue/margins, low liquidity, and stock pledges.
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It’s a good idea to research a company’s peers before investing. Identify what this company’s competitors are not doing.
In addition, you should be able to answer the question why you are investing in this company and not any of its competitors. The answer is unique selling point (USP), competitive advantage, low cost products, brand equity, future prospects (upcoming projects, new factory) etc. should be as persuasive as possible.
You can find a list of the company’s competitors on the Trade Brain portal. Enter the action name in the search box and scroll down. There you will find a peer-to-peer comparison. Alternatively, you can do a Google search to find the company’s competitors. Before investing, research your competitors in detail.
Most of the good investments are based on the future aspects/potential of the company and are very hard on the current situation. Investors are interested in how much return they can get on their future investments. So always invest in a company with a strong, long-term future. Choose only those companies to invest in whose products or services will be used for twenty years now.
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Also, it makes no sense to invest in a CD or pen manufacturing company without a long-term (say 10 years from now) outlook. Because cloud computing is growing so quickly, these products become obsolete over time.
If you are planning to invest for the long term, the longevity of the company’s products is a must-check. Future prospects, expansion opportunities, future revenue streams, etc. check it out.
Fundamental analysis is an old and proven method of finding strong companies for long-term investment. In this post, we discussed how to check the fundamentals of a company.
The six steps to conducting basic stock analysis described in this article are: 1) Use financial ratios for initial analysis, 2) Understand the company, 3) Study the company’s financial statements, 4) Check for debt and red flags, 5) Find the company’s competitors 6) Investigate future prospects .
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Also, here’s a video on how to do basic stock analysis to help you analyze stocks.
That’s all for today. I hope so
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