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CHAPTER 8 : FUNDAMENTAL ANALYSIS (ECONOMICS, INDUSTRY AND COMPANY ANALYSIS…
CHAPTER 8 : FUNDAMENTAL ANALYSIS
IMPLICATION OF FINANCIAL ANALYSIS
Limited data may occur error
Avoid excessive optimmism
COMPUTATION OF FINANCIAL RATIOS
PROFITABILITY RATIO
Operating Profit Margin = Operating Profit ÷ Sales
Net Profit Margin = Net Profit ÷ Sales
Return On Equity = Net Profit ÷ Total Equity
Return On Assets = Net Profit ÷ Total Assets
ACTIVITY RATIO
Receivable Turnover = Net Annual Sales ÷ Average Accounts Receivable
Inventory Turnover = Cost of Good Sold ÷ Average Inventory
Fixed Assets Turnover = Sales ÷ Total Fixed Assets
Total Asset Turnover = Net Sales ÷ Total Assets
LEVERAGE RATIO
Debt Ratio = Total Debt ÷ Total Assets
Debt-Equity Ratio = Long Term Debt ÷ Total Equity
Times Interest Earned = EBIT ÷ Interest Expense
LIQUIDITY RATIO
Current Ratio = Current Assets ÷ Current Liabilities
Cash Ratio = ( Cash + Marketable Securities + Receivables ) ÷ Current Liabilities
MARKET RATIO
Earnings Per Share = Net income Available to common stockholder / No of common stock outstanding
Price Earnings Ratio = Market Price / Earnings per Share
Dividend Per Share = Amount of dividend paid / No of common stock outstanding
Dividend Payout Ratio = DPS / EPS
Dividend Yield (%) = (Dividends per Share / Market Price per Share ) x 100
Price to Book = Market Price per Share / Book Value per Share
Retained Earnings Ratio = 1 - DPR
ECONOMICS, INDUSTRY AND COMPANY ANALYSIS
INDUSTRY ANALYSIS
Stock price are usually influence by industry conditions. If the outlook is good for an industry then the prospects are likely to be strong for many of the companies that make up that industry
ECONOMIC ANALYSIS
GOVERNMENT MONETARY POLICY
GOVERNMENT FISCAL POLICY
CONSUMER PRICE INDEX
OTHER FACTORS
GROSS NATIONAL PRODUCT
GROSS DOMESTIC PRODUCT
COMPANY ANALYSIS
Contains an evaluation and examination of a company, its financial health and prospects, its management or marketing activities and its strengths and weakness
CONCEPT
A method of analyzing a security that entails attempting to measure its intrinsic value by examining related point such economic, financial and other qualitative and quantitative factor