Trading
securities has become a quicker mode of earning profits easily. But many think
trading is very difficult and financial analysts or good educated
professionals can manage selling or buying to grab the profits. Through my
experimenting as a beginner I found some extraordinary tools and other
requisite knowledgeable resources important for trading. Blunt memorizing of
some important tips will fetch easy money through trend, revenue, profits cash
& cash equivalent analysis etc. In Trading Securities you get answer
to some questions through Fundamental & Technical Analysis.
****** Note : Red Indicates Risk
: Pink Indicates Normal
: Green texts Indicates Profit
Fundamental
Analysis:- In Fundamental Analysis you should
know all the following:
1) When Profit Margin Is good Consider P/E
P/E is low: low risk, low investment in acquisition of shares, low growthand low returns
P/E is High: high risk, high investment in acquisition of shares, high growth, high returns
P/E is Price-to-Earning ratio. Price means Market Price.
Reciprocal of P/E gives E/P or Earnings Yield
Consider the table below :
N/A
| A
company with no earnings has an undefined P/E ratio. By convention, companies
with losses (negative earnings) are usually treated as having an undefined
P/E ratio, even though a negative P/E ratio can be mathematically determined. |
0–10 | Either
the stock is undervalued or the company's earnings are thought to be in
decline. Alternatively, current earnings may be substantially above historic
trends or the company may have profited from selling assets. |
10–17 | For
many companies a P/E ratio in this range may be considered fair value. |
17-25 | Either
the stock is overvalued or the company's earnings have increased since the
last earnings figure was published. The stock may also be a growth stock with earnings expected to increase
substantially in future. |
25+ | A
company whose shares have a very high P/E may have high expected future
growth in earnings or the stock may be the subject of a speculativebubble. |
(OR)
P/S Ratio is considered for stocks with less profits:
P/S <1low risk
P/S>1high risk
Price
to sales ratio or PSR= Market capital/Revenue used for stocks with
less profits.It
would be low cost per unit for investor. But capital structure should be
assumed uniformly.
(AND)
When profit margin Is low consider
EV/EBITDA
EV/EBITDA is
6-18 : cash flow is good in the company
EV/EBITDA is
negative then go for EV/sale
EV
Or TEV Or FV (Enterprise value) =common equity at market value
+
debt at market value
+
minority interest at market value, if any
-
associate company at market value, if any
+ preferred equity at market value
-
cash and cash-equivalents
EBIDTA = Earnings Before interest, Taxes, Depreciation
and amortization.
2)
Compare market Cap to Book value
Book Value
< Market Capital
= Investor valuation is
High
Book Value =
Market Capital = It is normal
Book Value
> Market Capital = Investor valuation very low
This is similar to:
Read More in Part 2 ......
