There are many investors who earn money using technical and fundamental analysis, so that they could easily analyze the trends of the stock market in order to make the beneficial or profitable investment. Here we will try to understand fundamental analysis and the different segment use for them. Both fundamentals and technical terms are used in the stock market but only technical analysis can be used in entry and exit points in stock trading. Hence, if you are going to invest your capitals for less than six months, fundamental analysis may not be the appropriate way for you to navigate the stock market trading.
Before buying shares of the company, we analyzed some fundamental factors such as; sales, profit, asset and liability (debt), costs (expenses), the company received dividends and many economic factors are to analyze. To analyze these facts, we obtain a basic price (Intrinsic valuation) of shares then by comparing the price prevailing in the market, we can decide that at which price to buy shares that could benefit in the future, in times of recession by buying shares with good fundamental valuation a good profit can be earned while the market is up.
Many investors buy shares at low prices, and earn profits by selling the shares at a higher price by using this technique.
Fundamental analysis process
For fundamental analysis, investors must observe and see company’s Balance Sheet (annual records), Financial Ratio, and Quarterly Results. Annual and quarterly results may be seen on the official website of NSE and BSE. Financial ratios derived from the combined study of annual accounting and quarterly results. Financial ratios are quite helpful in making the right decision while buy and sell shares in the market.
Benjamin Graham invented a formula to assess the basic price that he later modified to fundamental analysis.
Even today we use this formula to assess the intrinsic value while fundamental analysis.
V = EPS x (8.5 + 2G)
V = Intrinsic Value
EPS = Earnings Per Share
8.5 = P/E base for a no-growth company
G = Growth (Potential) rate for the next 7-10 years.
Fundamental analysis is a great tool to capture some of the best stock market trading trends. Hope above information will be helpful to you and soon we will discuss about Technical Analysis on Stock Trading.