From the course: Behavioral Finance Foundations

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Fundamental analysis of stocks

Fundamental analysis of stocks

From the course: Behavioral Finance Foundations

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Fundamental analysis of stocks

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- [Instructor] Fundamental analysis is a way to evaluate investments free from behavioral biases. The problem is that there's many possible fundamental ratio tests an investor could consider. So let's look at four of the most important factors to keep in mind. First, we want to look at revenue and earnings. In particular, compare revenue to earnings over time. The easiest way to do this is to simply take the net income of the company divided by its revenue. Look out for companies where revenues are growing but profits are shrinking. Having a shrinking profit margin like that is a very negative trend. It indicates that the company might be facing competitive pressures. The ideal outcome is a growing profit margin and growing revenues. You want profits to be accelerating even faster than the revenues themselves. A second test you should look at is the debt ratio. The debt ratio is simply total debt divided by total…

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