8 Essential Metrics for Fundamental Analysis

For video version go to: https://www.youtube.com/watch?v=4o-AhrrgJQo
See our upgraded website at: http://www.cybloom.com

Use info at your own discretion!

1. Market Cap
So, this is the value of all outstanding company shares. Bear in mind that market cap has nothing to do with price per share; cap is all about the TOTAL value. We have large Cap = $10 billion +, Mid Cap = $2-10 billion +, and Small Cap = less than $2 billion. The share price of large companies typically move far fewer percentage points than small caps.

2. Revenue
This is the gross “income/top line” the company receives within a given period. By looking at this number, you can determine the health of the business and uncover seasonality’s etc.

3. Beta
This is a measure of volatility, i.e. how much the share price swings relative to the overall market. A beta below 1 means that it is less volatile, 1 means its in line with the market, and over 1 means it is more volatile. A stock with a beta of 1,6 is 60% more volatile than the market. The benefits of higher beta is that its rate of return COULD be higher, BUT you also magnify your downside risk.

4. Price-to-Book Ratio
This one divides the stock share price by the company’s tangible net assets; i.e. intangibles does not count. A P/B below 1,6 is a sign your getting stocks at a price close to fair value.

5. Price-to-Earnings Ratio
This is the OVERLORD of ALL fundamental metrics! We find a company’s P/E by taking the price of its stock and dividing it by earnings per share. Lower P/E means that we are getting a stock at a more reasonable price. Though, keep in mind that average P/E systematically differs between industries and countries.

6. PEG Ratio
The PE in PEG, comes from the P/E we just talked about, and the G means that it compares the former to earnings Growth. A stock with a PEG below 1 is considered to be undervalued given its earnings growth, which means it’s a better buy.

7. Free Cash Flow
A company cannot spend money on R&D, dividends, acquisitions and the likes unless it has available cash. Cash flow can turn negative if they invest in big projects.

8. Debt-Equity
Some companies take on huge amounts of debt in order to operate, which is rather risky if things do not go as planned. A high value, relative to industry average, means that you are not getting a value play.

Music: “Cipher2” Kevin MacLeod (incompetech.com)
Licensed under Creative Commons: By Attribution 3.0
Video background: Far Cry 3, by Ubisoft Montreal

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s