Stock Market Academy

In the business world, fundamental analysis can refer to the manner of analyzing different financial statements, management, instruments and advantages as well as analyzing the competitors and the market as a whole. If a trader chooses to focus on the futures and foreign exchange trading, this means that fundamental analysis will be dealing with the overall condition of the economy, the states of the interest rate, production as well as earning and other economic financial activities.

In order to accomplish this, all trader use different tools in order to understand each other and make the analysis more comprehensive, readable, relevant and reliable. There are actually lots of fundamental analysis tools that a trader can used, but among the most popular are the return on equity, earnings per share, price to earnings ratio as well as price to sales or books and the book value. These tools will be discussed briefly below.

Return on Equity

The most popular tool being used by all traders around the world is the return on equity or RoE. In a general perspective, what this means is the measurement on the rate of the return on the ownership of a trader to the interest or the shareholder’s equity. This is primarily being used in order to have an idea on how a specific company performs and uses its funds in order to generate earnings.

Earnings Per Share or EPS

On the other hand, the earnings per share or the EPS is the measurement on the amount of the earning in each outstanding share of a specific stock of the company. This is being used in order to have a glimpse on the ratio of the profit and weighted average common shares of a company.

Price to Earnings Ratio or P/E

Another popular tool being used in fundamental analysis is the price to earnings ratio. This is being used in order to state the measurement of the price paid to buy a share in relation to the net income earned by the form for every share in annual basis. Alternatively, this can also be calculated by getting the ratio of the market capitalization of the company by the total earning per annum.

Price to Sales (P/S) and Price to Book (P/B)

On the one hand, the price to sales or the P/S is the ratio that is being used in order to measure the value of a specific stock in relation to its performance in the past as well as the market and other related companies. This is being calculated by dividing the price of the stock to the earnings or revenue for every share. On the other hand, the price to book, is a measurement to compare the value of a stock to its book value.

Book Value

The last fundamental analysis tool on our list is the book value. This is similar with carrying value, which means the value of a specific asset according to the account balance.