Stock market fundamentals refer to the core financial and economic factors that influence a company’s value and stock price. These fundamentals help investors assess whether a stock is worth buying, holding, or selling.
Key Components of Stock Market Fundamentals
Financial Statements: It is the backbone for Financial Analysis
- Income Statement: Revenue, Expenses, Profit Over Time
- Balance Sheet: Assets, Liabilities and Shareholder’s Equity.
- Cash Flow Statement: Cash in and out of the business.
Earning and Profitability:
- Earnings per Share: Ratio of Net Income to Number of Outstanding Shares
- Net Profit Margin: Percentage of Revenue profit after expenses
- Return of Equity: How efficiently a company uses share_holders equity to generate profit
Valuation Metrics: Compares Stock Price to its Fundamental Performance.
Price-to-Earnings (P/E) Ratio: Stock price divided by EPS.
Price-to-Book (P/B) Ratio: Compares market value to book value.
PEG Ratio: P/E ratio adjusted for earnings growth.
Growth Indicators:
Revenue Growth: Increase in sales over time.
Earnings Growth: Increase in net income year-over-year.
Market Share: Company’s portion of total industry sales.
Debt and Liquidity:
Debt-to-Equity Ratio: Measures financial leverage.
Current Ratio: Current assets divided by current liabilities—indicates short-term liquidity.
Quantitative Factors:
Management Quality: Experience and track record of leadership.
Competitive Advantage: Unique strengths like patents, brand, or network effects.
Industry Trends: Broader economic and sector-specific conditions.