In some way or another, we are all investors; the difference is marked results. All invest daily, time, knowledge, energy, money, invest in education, we invest in health but then why do not most people get the same results?, simply because they do not realize the capital you are putting yourself at risk.
The mindset of the investor is constantly analyzed by hundreds of people who are engaged in business and are even forming their first ventures. Fundamental analysis helps greatly with analyzing the same. It’s used by analysts who believe that the market has a weak efficiency. This means they think the price of shares in the market does not really represent their true value; analysts use accounting and financial information to try to calculate that value (target price).
There is no exact mathematical valuation of companies. So, two analysts can reach different results studying the same company depending on their expectations of the company and the number of data which they consider building their valuation models. You have different valuations is normal, it is within the logic of the market; when there is a transaction it is that the buyer and seller have a different view on the price.
- 0.1 Essential Attributes of Successful Mindset of a Great Investor:
- 0.2 The PER Or Price-Earnings Ratio:
- 0.3 The Dividend Yield:
- 0.4 The EV / EBITDA Ratio:
- 0.5 The Price / Book Value (Price To Book Value) Ratio:
- 0.6 Return On Equity (ROE):
- 0.7 Multiplier Cash Flow:
- 0.8 Pay-Out:
- 0.9 Conclusion:
- 1 Basics of Fundamental Analysis for Beginners
Essential Attributes of Successful Mindset of a Great Investor:
Here is a selection of the key ratios most commonly used by best investor’s mindset and you can see every day in the business press. Whether you are trading in stock market, forex market, commodity, currency market or derivative markets right mindset and right attitude is required to be a best investor or best trader.
The PER Or Price-Earnings Ratio:
It is perhaps the most used ratio in all types of analysis. The PER measures the ratio between the share price and earnings per share (EPS). Indicates the number of times the benefit is contained in the share price. That is, if the PER is 20, that means that the price is twenty times the benefit obtained by the company. Or what is the same, there will be twenty years accumulating benefits up to offset the initial investment.
One of the biggest utilities PER is employment in comparison, especially in companies in the same sector. For example, if the PER is 11 times Santander and BBVA 9 times, then the BBVA shares will be cheaper in terms of this ratio. In general, the higher is the PER, more expensive or more actions will have to wait years to recoup the investment given the pace of profit generation of the company.
The Dividend Yield:
The dividend yield is another indicator widely used by investors to make their decisions. This ratio is obtained by dividing the dividend per share (DPA) between the last share prices. From the perspective of the shareholder, this ratio should be the higher better as it measures the performance you get with the payment of dividends. For example, for a great mindset investor, if the BME (Blackrock Health Sciences Trust) dividend yield is 8%, that means investing in shares of BME has paid 8% this year alone for the payment of dividends.
The EV / EBITDA Ratio:
The PER reflects how cheap is a signature in relation usually comparable with its sector. The problem is that this ratio does not take into account, for example, financial debt or if the company has a high profit due to extraordinary results. So you can select problematic companies and give them much weight in the portfolio, says Carlos Torres in his book “Investing low cost”.
To solve this problem, Torres proposes using another indicator to find undervalued companies that give better signals, the EV / EBITDA. The numerator of this ratio is what is known as “enterprise value” (EV) which literally means the value of the company. The denominator EBITDA stands of Earnings Before Interest, Taxes, Depreciation and Amortization.
The Price / Book Value (Price To Book Value) Ratio:
Another classic ratio is the price / book value. The numerator is the value of the share price, i.e., their value at market prices and in the denominator the book value of the same action. When the value of this ratio is high means that either the stock is traded face or the accounting book value is undervalued. To buy any stocks you should possess right mindset and right attitude to do fundamental analysis on companies stock ratios to take the right action.
Return On Equity (ROE):
The ROE is the ratio between profit (after paying the interest on the debt) and equity. But other authors also used in net profit. ROE measures the profitability of shareholder accounting since it compares the likely benefit of being distributed among the shareholders with what they have invested in the company.
Multiplier Cash Flow:
The multiplier cash flow is calculated by dividing the last share price between cash flow per share. His interpretation is very similar to PER, i.e., if the value is high implies that stocks are expensive relative to the cash flows generated by the company, so perhaps it would be time to sell the securities.
This ratio, payout, is usually one of the most frequently mentioned in the press. It serves to determine whether a stock is expensive or cheap. Also, it is important to shareholders to the extent that reflects the dividend policy applied by the company. It is calculated by dividing the dividend per share and earnings per share. It measures the percentage of profits that are intended to be distributed as a dividend, so the shareholder’s interest that is higher the better.
A great investor does not buy shares just by looking at the price of the stock. Right mindset leads to a successful investor. One have to analyse different types of ratios to identify the companies outlook, companies stock valuation and many more. After analyzing various fundamental factors of the company, you have the clear mindset whether to buy or sell the stocks.
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Basics of Fundamental Analysis for Beginners
- Chapter 1: What is Fundamental Analysis? Definition, Types, Examples
- Currently Reading: Characteristics and Mindset of a Great Investor
- Chapter 3: How to Analyze and Read the Annual Report of a Company?
- Chapter 4: Qualitative Factors in Investment Decisions of Company Analysis
- Chapter 5: What is Qualitative Data Analysis? Methods to Measure Performance
- Chapter 6: What is Cash Flow Statement? Definition, Example, Format, Analysis
- Chapter 7: Financial Ratio Definition, Examples, Ratio Analysis Interpretation
- Chapter 8: What is Investment Due Diligence? Examples, Process, Procedure
- Chapter 9: What is Discounted Cash Flow? Analysis, Examples, Problems
- Chapter 10: What is Equity Research? Definition, Examples, Report Analysis
- Chapter 11: Basics of Fundamental Analysis Quiz - Questions and Answers
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