Fundamental Analysis

PEG ratio

The EPS growth number is provided by the company and is their forecast of how much additional earnings they anticipate in the coming reporting period.  Although nowhere near as widely used as the basic P/E Ratio, many financial experts feel the PEG gives a better measure of whether the share price is undervalued or overvalued….

Market valuation ratios

To give you a working example, ere are the numbers for two stocks in the biotech sector (as at 29th May 2011):   SRX CSL Sector Price to Earnings (P/E) 25.31 19.2 14.8 Price to Earnings Growth (PEG) 10 2.06 10 Price to Book (P/B) 5.65 4.42 2.03 Price to Sales (P/S) 4.51 2.24 8.57…

Current Ratio

With liquidity ratios, higher numbers represent safer financial cushions against economic shocks.  A company with a high current ratio should have no trouble meeting its short-term debt obligations without sacrificing operational capability. However, taking the Current Ratio at face value without considering the nature of the company’s assets can lead to trouble.  This ratio assumes…

Debt to equity

Lower numbers here mean a company is using less leverage, or debt, to operate. Although larger companies can generally handle larger debt loads, the D/E Ratio taken in isolation doesn’t tell you anything about possible trends in the use of debt.  Has the company’s debt been steadily increasing over the past years?    If so,…

Annual Report

At the end of each fiscal year, companies and mutual funds issue their annual reports. These contain detailed information on the operations and financial picture for the company during the  past year, both in text and graphic form. Normally, all annual reports contain: Resumé of the financial year in question;Short presentation (text, graphics, tables);Management position/analysis/letter…

Breakout

Normally traders would buy the assets when the price breaks above the resistance point (its previous high price) and sell when it breaks below (previous low price). Once a resistance is broken, it will become the next support level. Breakouts are usually followed by large trading volumes of the shares in question and high volatility….

Price-to-Book Ratio

A handy measure used to assess whether a company’s share price is justified or not is the Price-To-Book Ratio (P/B ratio). The P/B ratio is calculated by dividing the closing price of the stock by the company’s latest book value per share (from its quarterly or annual statements). Many of you would be familiar with…

EBIT

EBIT stands for Earnings Before Interest and Taxes and is used by stock analysts to value and compare companies. In short, the EBIT shows how profitable a company is from an operational standpoint, or from the day to day running of its business. Some analysts prefer EBIT to the net profit figure, which we analysed…

EPS

The earnings per share (EPS) of a company is one of those important little numbers that every investor should know about a stock before investing in it. It’s a telling way of looking at a company’s profits because it takes into account the number of hands in the pie, or the number of shares on…

Net Tangible Assets (NTA)

The “net tangible asset backing per ordinary share” figure, often abbreviated “NTA”, is one possible measure of the worth of a share, although its usefulness is subject to some reservations. It can be compared to the market value of the share. In an ongoing company the various measures related to income tend to be more…