Basic Fundamental Research Ratios for Stock Analysis

Fundamental analysis is a critical part of analyzing stocks, along with technical analysis. Nowadays, there are many software programs to help you analyze stock trends. Fundamental and technical analysis are two most basic types of stock analysis. Some stock software makes the job very easy for investors. Investools is an example of a stock fundamental analysis software that pre-input the results of fundamentals for investors. Using fundamental analysis to trade futures proves to be much more accurate than just using technical analysis and charts.

Fundamental Analysis Explained

In fundamental analysis, the analyst assumes that every stock has an ‘intrinsic value’. If you can find that intrinsic value of the stock the it is easy to see if you should buy or sell that stock. You will often hear the term intrinsic value in stock analysis as well as analysis for commodities, futures and options. We will discuss intrinsic value in a later section.

Stock fundamental analysis deals with earnings of companies. So analysts will analyse numbers in the financial statements as well as what is going on in the company. In technical analysis, however, analysts will look at charts primarily and calculate probabilities using advanced mathematics.

Another fundamentals research ration is ROI. Return of investments is an easy way to gauge whether an investment is good or not. When doing stock analysis, one of the first thing to do is calculate return on investment. Return on investment calculation is easy and there is a simple return on investment formula for calculating return on investment. So, what is a return on investments?

What is a Return on Investments?

A total return on investments is a combination of the dividend income and price appreciation or decline over a period of time. Therefore, the return on investment formula is:

Return on investments

=

Capital appreciation or depreciation

+

Dividend income

What is a dividend?

Dividends are used to calculate return on investment. Dividends are distributions of a company’s profits to its stockholders. Investors who invest in a stock will receive dividend income whenever the company declares it. Dividends are automatically sent to investors’ brokerage accounts. There are two types of dividends: cash dividends and stock dividends.

Current yield

Current yield is also used in calculating return on investment. The current yield or dividend yield is the annual dividend divided by the current market value of the stock. Dividends are often paid quarterly, if at all. The current yield formula is:

Current yield (dividend yield)

=

Annual Dividend
—————
Current market value of stock

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