Fundamental analysis terms
Fundamental analysis is a method of evaluating companies and investments by examining fundamental financial and economic data to determine the true value of a company or investment. Fundamental analysis is based on the assumption that the market price of an asset does not always reflect its true value and that evaluation can be improved by analyzing fundamental data.
This article explains some important terms in fundamental analysis that may be of interest to investors and analysts.
Revenue: Revenue is the total amount of income a company has earned from the sale of goods or services during a certain period. Revenue is an important indicator of a company's growth potential.
Profit: Profit is the amount remaining after deducting all costs, including taxes and interest. Profit is an important indicator of a company's profitability and its ability to service its debts and pay dividends.
P/E Ratio: The price-to-earnings ratio (P/E ratio) is a ratio that indicates the current market price of a stock relative to its earnings per share (EPS). The P/E ratio is an important indicator of the relative value of a stock and is often used as a benchmark for stock valuation.
Return on Equity: Return on equity is an indicator of the profitability of equity investments and indicates how much profit a company earns relative to its equity. A high return on equity indicates efficient use of capital and may be an indication of good management.
Dividend Yield: The dividend yield indicates the ratio of a stock's annual dividend payout to its current market price. Dividend yield is an indicator of the return an investor can achieve by investing in a particular stock.
Price-to-Book Ratio: The price-to-book ratio (P/B ratio) is a ratio that indicates the current market price of a stock relative to its book value per share. Book value is the value of a company's equity per share. The P/B ratio is an indicator of the relative value of a stock and is often used as a benchmark for stock valuation.
Debt-to-Equity Ratio: The debt-to-equity ratio indicates how much debt a company has relative to its equity. A high debt-to-equity ratio may be an indication that a company has higher risk of defaulting on its debts.