Fundamental Analysis of Securities

After analyzing the preceding information from the actual climate of the stock exchange market which is important for the fundamental analysis of the securities, the study of financial analysis and of rate are key tools for the fundamental analysis.

The objective of this group of information used is the calculation of the value of assets traded, as sits future profitability and the rate of growth of them. With this you will try to anticipate the evolution of these shares that represent the capital of the companies in question.

The fundamental analysis is base on the following points:

Market value of the security.  This is maybe the most representative value of a share, due that it reflects at each moment what the market is willing to pay for it. The problem of taking in consideration the quotation is that it varies every day with the offer and the demand, as with the evolution of the financial markets in general. (Including investing fashions, global aptitude of the investors, good or bad news, etc.).

Accounting value of the share. Is that which corresponds to the share according to the accounting sites of the company? It is obtained by dividing the own capital, or equity capital, or net assets of the company (reflected o the liabilities of their situation balance) by the number of shares there is.

It can also be obtained by making use of the difference between the assets and the debts, instead of the own capital, due that the results are the same.

Finally, you can also calculate the accounting value of a share deducting from the numerator the so called fictions assets, as is the case of the redeemable expenses, due that they are susceptible to being sold or to be converted into cash money. The problem that this indicator has is that the accounting value of a share is on the situation balance of the company and in it there not always figures the real values. This happens because in an asset most of its components are valued in function of the acquisition or market value of a share you also use what is denominated as the theoretical or intrinsic value of the share.

Theoretical or intrinsic value of a share.  Is the value that the share should have after a security analyst examines I detail all the relevant data of a company. It’s estimated from the evaluation of its components (real state, existences, etc.) with the finality of knowing what the market is willing to pay for each one of them.

When an important part of the assets of a company is formed by real state and other kind of assets that might increase its value over the time, the theoretical value of a share is usually larger than its accounting value.

The main idea of a fundamental analysis is that, in a determined moment, the discrepancy’s that could arouse between the different values of a share will tend to get nearer to the intrinsic value of the same, so the criterions of buying and selling securities should be established around those discrepancies.

It might happen that a share could have a high intrinsic value but it isn’t reflected on its market value, and also on the contrary.

In the first case, we are supposing that the share will rise in value, on a certain period, while in the second case it will diminish.

To be able to determine the discrepancy’s between an intrinsic and market value, the fundamental analysis uses, the financial reports and in particular the ratio method.