Summary Fundamental analysis - Statements and Ratios

. FUNDAMENTAL
3 ANALYSIS

, Component 3: FUNDAMENTAL
ANALYSIS

FUNDAMENTAL ANALYSIS :



·
determine intrinsic value of shares of a comp .


by looking at current 3 future

fin. performance


Intrinsic value =
discounting future income 3 dividends

Compare
·
to current market value


>
-


market price intrinsic value : under-valued

>
-
Market price > intrinsic value : over-valued




financial analysis : used to det. Which shares to
buy


* Evaluate fin
.
position of comp .




↓ ↓

financial financial


statements ratios




. 2
3 . STAKEHOLDERS IN FINANCIAL ANALYSIS




① Shareholder
.




·
current3 potential
·
interested in comp's ability to generate income

·
EPS & DPS important to SH

↳
Earnings + dividends per share




Q. Providers of debt capital
·
current potential
· interest in amt of debt capital in
capital structure

·

ability to meet capital + interest repayments
focus on liquidity analyses
·
solvency +

, ⑤. Management + Employees
·
must be continuously informed about fin. position
>
-
ensure efficient decision-making
·

employees interested in ability of bus. to survive long-term



① Diverse groups
=
not directly involved in comp activities .




· still interested in fin.
perf.

eg
. clients ,
competitors , suppliers etc .




3
.3 .
FINANCIAL STATEMENTS



STATEMENT OF PROFIT OR LOSS

=
summary of fin. performance for specific time period


not necessarily just cash-flow items
·




ITEMS INCLUDED :




REVENUE :




·
all compensation received for products/services provided during period
·
sales = revenue for
trading entities




COST OF SALES :




costs
directly incurred to generate revenue
·




cos =
olB inv + purch-purch ret-clB inv




GROSS PROFIT :




·
profit from sales activities

·
GP =
Revenue
-

COS

(sales)