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Fundamental Analysis: Most Used Tools By Investors

Sat Dec 19 2020 10:52
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Fundamental analysis is an important thing to earn a good return on investment for traders. Whether you have to buy or sell stocks of some particular business entities in the stock market, or you are trading any investment instrument in the global market. 

You need to analyze a fundamental level to know more about the business entities, it's market value projection, future growth, and many more things.  

If you are not aware of fundamental analysis tools, we have done the complete research for you. Because reading this post will help you know more about these tools and how they work. 

After you complete this post you will be able to use any technical analysis tool used by investors or traders.  

Detailed Information of Fundamental analysis

So without wasting any time let's jump to the next level where we will help you know more about all the tools. Before we tell you all about the most used tools, we will also tell you more about trading analysis tools and the components of the trading markets that are used for research and analysis. 

What Is Fundamental Analysis? 

When you are about to buy or sell any stock or any other investment instrument in the market, you want to know the value of that asset or instrument. The current value of that asset will be listed on exchange markets. 

But what about the other future projections and performance history of that instrument? Where you will find such details about the stocks of that particular company.  

Using these tools 

Using these tools you can easily analyze the market value, growth projection, risk management of losses, etc. Using these tools a trader can analyze instruments to know whether they are profitable for them or not. 

After analyzing you must have to change your trading strategies accordingly. Many trading platforms are also providing these analysis reports in online trading.  

No matter you are involved in which type of trading, whether someone is in the forex market, intraday, commodity market or someone trades securities of high volatility. A trader must ask the broker or his trading platform for such analysis tools to enhance his trading strategy.  

Top Fundamental Analysis Tools 

As we have said to you that there are many analysis tools available out there in the market. These tools are useful for any market size. Whether you are going to apply for a trading account where liquidity is very high such as a foreign exchange market or you are just at the initial level of trading and want to learn how to trade.

Still, traders can use these fundamental analysis facilities. So below mentioned tools are the most used tools. Also, these tools are recommended by most of the expert advisors. 

Here we will help you know about these tools and how traders make their trading plan after using these tools and apply it to live trading sessions in the stock-trading market.

#1. Earnings Per Share (EPS) 

The very first and most used fundamental analysis tool is earnings-per-share or EPS. As its name says, this tool is to know more about the company's per-share profit. According to some experts as a trader, it is very important to know more about the earnings per share of a company.  

Knowing the trading news about that company or looking at the dividends, stock price-action, the purchasing power of its stocks, are not enough. You are required to dig more. And you get more analysis about the company after dividing its profit. (After taxes paid) by the number of shares it has.  

#2. Dividend Yield Ratio 

If you are one of those traders, those who want to get the dividend from the particular company listed in the stock market. Then it is vital to know the dividend yield ratio for that organization. 

This fundamental analysis tool will help you know how much that company is paying as dividends to its shareholders.  

You can calculate it on trading software but it is very easy to do manually. Divide the annual dividend by the newest price of the share of that organization and it's the dividend yield for that firm. 

#3. Price To Book Ratio (P/B Ratio) 

Price to book ratio is a helpful fundamental analysis tool when you want to match the entire market share of a firm with its book value. The formula to use this tool and get the P/B ratio is also very easy. 

Divide the stock price of the firm with the book price per share of that firm. It will help you know how much equity you will have to pay per dollar while investing in that company.  

#4. Price To Earning (P/E Ratio) 

What you expect from a company when you buy a share or the commodity futures related to that company. In other words, how much profit will be there for you as a trader when the company earns more market share and profits?  

If you want to know, then the P/E ratio is the best fundamental analysis tool to use. Because it will help you know about this value. A trader needs to do— the market value of a share/ earning per share 

#5. Dividend Payout Ratio 

No companies are there that pay whole earnings as dividends to their shareholders. They held a portion of the dividend for business growth. So what is that portion? 

To know this you have to divide the total dividend by the net assets of the organization. A trader should use this fundamental analysis tool before infesting. 

#6. Return On Equity (ROE) 

Shareholders get a return on equity when they have invested in companies. If you want to calculate this ROE value then you can simply use this fundamental analysis tool to get the actual value the shareholders are getting on equities. 

The formula is simple, you just have to divide net income with the book value and then divide it by 100%.  

#7. Projected Earnings Growth (PEG Ratio) 

Before you take any price action using any market data, analysis charting, or chart patterns, you must find out the projected earning growth. From day-trade to long term trade, everyone can do it. Here we will not find anything related to the past performance of the company.  

But we will try to find out what amount traders will have to pay per unit for the future earnings of the company. In this fundamental analysis tool, you have to divide price to earnings ratio with the projected growth of the company.  

#8. Price To Sales (P/S Ratio) 

Comparison is very important in all of these fundamental analysis tools used by traders. Trading stocks become more profitable with these tools. So you must trade stocks using these tools.  

Here you will compare the stock price of the company with revenue. So you just simply divide the market capital with revenue. Also, you can divide the per-share value by the per-share profits of the firm. 

Conclusion - Fundalmental AnalysisTools

All of these fundamental analysis tools are vital and you must start learning them as a beginner to earn big. Various tools are there but we have listed the most used and necessary tools to have as a stock trader. Using these tools doesn't require any trading software. 

Simple calculations made using mathematical calculators and some company profile data is required only. You can easily find out all of these values and then use them accordingly.  
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