What is a fundamental contribution?

In order to have a good investment in the stock market, we first need an appropriate strategy based on time, expected return and risk. The first step in this direction is to identify the stocks of companies using one of the professional methods of analysis. There are certain criteria for selecting a stock, such as industry outlook, profitability, liquidity, debt, price-to-earnings ratio, free-floating percentage, liquidity, dividend policy, shareholder composition, stock price history, and so on . On the other hand, to choose stocks, we must also consider the personality traits of the individual, the desired profit and the level of individual risk-taking. One of the main methods in stock selection is fundamental stock analysis; By which a valuable fundamental contribution can be selected.

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A company’s fundamental analysis includes the analysis of the company’s financial statements, how it is managed, the company’s competitive position, measuring competitors and related markets, and forecasting sales and costs. In this method, the basis of prediction is based on the reality of the company’s existence. In this regard, the trader predicts the share by analyzing events and news based on his knowledge. The basic premise of analysts is that all changes in the price of a share must have a fundamental cause that results from changes in the company’s profitability. ” Contributions of the Foundation and buy the underlying share is” . Now to determine the different angles of a fundamental contribution , it is necessary to examine the fundamental analysis more closely.

Fundamental analysis and contribution framework

To select a fundamental share, the investor first analyzes the country’s economy and the global economy in order to determine the appropriate time of entry. It then analyzes the industries to find out which sector has the right future prospects for investment, and finally, if one concludes that the entry time is right and the right industries are operating in the economy, it analyzes the relevant companies. The basic analysis in order to select the basic share at the level of a company includes the analysis of the main financial factors, including the profitability of the company to determine the intrinsic value. These variables include sales, depreciation, profit margin, financial resources, tax rates, asset turnover. The next step in choosing a long-term share can include measuring the company’s competitive position in the relevant industry, technology level, management quality, external competition, and so on. Some of these factors are under the control of the company itself, which should be considered in the selection of the basic share and we will mention them briefly.

Profitability

Definitely the best factor in the superiority of a share is its profitability. Profits can be examined in several ways:

In terms of income
Based on sales
Based on assets
Based on equity

The higher the profitability of a company, the more it will definitely be a priority for us to choose our core stock. In fact, what path does the company take to reach net profit starts from the point of income or sales, and goes through the profit and loss statement step by step to reach net profit, in this way, cost, other revenues And operating and non-operating costs, taxes and financial costs are among the most important factors affecting profitability. Therefore, in fundamental analysis, it is important to examine where the reason for the company’s profiteering comes from and how much these brokers are subject to change, and what scenarios can be defined for them in the coming years.

Profitability stability

Paying attention to profits in a year is not necessarily the right basis for making a decision because profits may not be continuous; Therefore, the criterion of profitability stability should be considered in the selection of basic stocks. One of the most important things to consider in corporate profitability is to repeat the profitability. In fact, after taking the previous step, you can easily answer the question, where exactly did the company’s profitability come from? Can the company repeat it in the coming years, and in other words, is this profit repeatable or not?

Dividend ratio per share

It should be noted that this ratio should not be considered in the short term and should be considered in the long run, and its long-term trend is an important item in the selection of fundamental stocks. A high or low dividend ratio should not be the criterion for determining what matters, for example, if the company has a low dividend ratio but the reason is that it returns the profit to the company and enters the development plan and in the coming years Increase the profitability of the company, this is in the interest of shareholders in the long run.

P / E ratio per share

These ratios represent the price per share per profit per share. Contrary to many articles that definitely know the lower number of this ratio better, here we will explain it in more detail:

This ratio shows what the market’s price for each share of the company. The price-to-profit ratio has two general modes, retrospective and futuristic. What should be considered for your decision is the futures ratio, and this is an important point that many market participants do not consider. In this case, you need to estimate the future profitability of the stock, and in a comparative situation , its lower ratio could be better. In the above description, you can pay attention to the two words comparative terms. This is because it can by no means be the only reason for your decision and should always be considered alongside other fundamental factors. The next point is that if the company had a high price-to-earnings ratio, does that mean it is not a good company to invest in?

Note that this ratio varies in different industries, for example in technology-oriented companies, this ratio is higher, so it does not necessarily mean that it is worse, but reflects the growth prospects of these companies, also at the heart of this ratio Gordon formula This formula takes into account the three factors of future dividend profitability, expected rate of return and growth rate of the company. Down.

Eigenvalue per share

The equity of each share is measured relative to the nominal value, and the higher the equity of the nominal value, the stronger the position of the company’s stock; Therefore, the difference between the equity value and the higher nominal value is a positive point in the selection of the underlying stock.

Company financing structure

The financing structure of the company, which includes debts, equity, has a great impact on the performance and profitability of the company, so it is very important to pay attention to the financing structure and its composition in choosing the basic shares.

Direction and date of dividend payment

The faster the cash dividend per share, the more beneficial it will be to shareholders; As a result, a stock with a shorter dividend payment period will be given priority in the selection of the underlying stock. The reason for this is the important discussion of the time value of money in investing reasonably. In this discussion, the discount rate factor is discussed and it simply means that the money received today is more desirable for investment.

Continuous dissemination of information and news

The clearer the information, the easier it is for individuals to make informed decisions, so more transparent companies will have more fundamental stocks.

Company life and depreciation rate

The higher the depreciation of the machines, the lower the profitability of the company will be, and as a result, the score of the company’s core stock will be reduced. In general, the stated factors will determine the fundamental quality of a stock, and by analyzing them, a valuable fundamental stock can be selected. It should be noted that in analytical methods, 80% of the market economy is based on the mental states of individuals and 20% is based on logic. While fundamental analysis considers the weight of logic to be higher, the importance of mental states in general cannot be overlooked, and it should not be forgotten that contribution analysis is “more of an art than a science” and needs to be Learn specialized.