Fundamental analysis and fundamental terms of stocks

    The Stock Market or the Share market is one of the tools that this world provides to increase or maximize our wealth. But you need to be very familiar with the fundamental terms to make more profits as an Investor in the stock market. In this article let me explain all the fundamental terms you need to know. 

Annual Report

    If you are an investor the, most important thing you need to keep track of the annual report company that you have stocks. The annual report provides the performance of your company and how it performed in the last financial year. And most importantly when you are studying you need to give utmost importance to the balance sheet of the company. Apart from that, you will get who is the person behind the management of the company. Knowing about the promotor of the company is very important because the character and their way of thinking will definitely be reflected in the operation of the company. Also, you need to see which product gives the maximum profits for the company and which market whether Domestic or Foreign, if Foreign you need to follow the country because the political action of that foreign country may affect the profits of the company. Hence it will have an impact on the share price as well and the dividend that they will provide will increase or decrease based on the favorable and unfavorable policies of the foreign country. So Let us see what the is Balance Sheet.

Balance Sheet

     A Balance sheet is one of the keys away from the annual report of a company, it will completely tell us how many assets the company has how many liabilities(Both Short and Long Term), and the free cash flow it has along with the profits that company has made in that year. There are two types of Balance sheets: a Standalone balance sheet and a Consolidated balance sheet.

Balance Sheet Standalone

    Let's take Alphabet Inc., which is the parent company of Google i.e. Google is a Subsidiary of Alphabet INC, the balance sheet that is provided by Alphabet incorporation its standalone balance sheet means the profit and the losses of Alphabet Inc. only reflected. The subsidiaries were left out.

Consolidated Balance sheet

    If the profit, losses, debt, and assets of all the subsidiaries were consolidated in the balance sheet like for Alphabet Inc. if Google's profit, losses, debt, and assets were included along with all the subsidiaries it is known as the Consolidated Balance sheet. The Consolidated balance sheet will give a better view of the company for investment because at the end of the day if you are investing in a parent company the profit and the losses of the subsidiaries need to be taken up by the parent company. Hence if you are investing in an MNC you better see the Consolidated Balance sheet rather than Standalone. But if the company is Small or has an IPO you can go with Standalone.


    Asserts are nothing but the money that is held by that company in the form of machinery, Buildings, or any other means of nonliquid possession of the company.


    Liabilities are nothing but the amount of debt the company needs to pay back. If a company takes a 200cr loan then it becomes a liability for the company.

Free Cashflow

    Free cash flow is the amount of liquid i.e. the liquid cash the company has in hand. A Marginal amount of free cash is required for all companies for better functioning.


    The dividend is the share in the profit given by a company to its shareholders. This is purely under the discretion of the company and differs from company to company. Company A may give 1$ per share for a 500 Crore profit whereas Company B may give 2$ per share for the same profit whereas Company C may not at all give dividends to its shareholders. You need to analyze the previous Dividend of that company for at least the past 5 years. You need to find the reason for not dispersing the Dividend. Some Companies instead of giving dividends use the money for further investments. So they can produce more profits and increase share price in the future those companies are good to go because you will get benefits from the company. There are other companies where they don't disperse the dividend at the same time the promoter takes the major share of the profit for themselves without investing it again such kinds of companies to be avoided.      


    EBITDA  is the Earnings i.e. Profit of the Company before any deduction of Interest, Taxes, Depreciation, and Amortization.

    Interest - The Interest that the company needs to get paid to the loans or debt instruments they have.
    Taxes - The Tax that a company need to get paid to the government
    Depreciation -  The company will have so many assert some may depreciate i.e. less in value than the previous year like machinery etc.,
    Amortization - It is like a long-term depreciation payment like long term depreciation amount

Earnings Per Share(EPS)

    Earning per share is the most important of all while selecting the stock. It is the amount of profit a company produces at the end of the year after deducting all the Interest, Taxes, Depreciation, and Amortization that need to be paid without the inclusion of the dividend. EPS is given by the formula,

    EPS = (Earnings - Dividend Dispersed) / Weighted average common shares

    With the help of EPS we can see the profitability of a company, Let's say the EPS of Company A is 1$, the Company A spends 100$ to produce 1$, but at the same time the EPS of Company B is 10$ this means Company B produces more profit than Company A for the same amount of capital employed. Hence we can invest in Company B rather than Company A. Since more profits can be obtained in the long run.

P/E Ratio

    It is the Price-to-earnings ratio, if the P/E ratio is high means that the share price is rising faster than its Earnings i.e. profit which indicates that the share is too expensive and the price may fall in the future. But if the P/E ratio is less then it indicates that the share price is growing less than the profitability of the company, which means that the share price may go up shortly. The P/E ratio of the company needs to be compared with the particular industrial average i.e if Britannia's P/E is 1.2 and the average P/E ratio of FMCG average is 3, then the share price of Britannia is less, then it has a chance of higher share price shortly. so we may consider buying the stocks along with the comparison of other parameters.



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