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What is Fundamental Analysis ?
« Reply #-1 on: October 06, 2008, 02:32:09 PM »
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What is Fundamental Analysis

Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.

Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.

Earnings
It’s all about earnings. When you come to the bottom line, that’s what investors want to know. How much money is the company making and how much is it going to make in the future.

Earnings are profits. It may be complicated to calculate, but that’s what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.

When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.

While earnings are important, by themselves they don’t tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.

Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.

Earnings per Share – EPS
Price to Earnings Ratio – P/E
Projected Earning Growth – PEG
Price to Sales – P/S
Price to Book – P/B
Dividend Payout Ratio
Dividend Yield
Book Value
Return on Equity

No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.

Pakinvestorsguide

What is Fundamental Analysis ?
« Reply #-1 on: October 06, 2008, 02:32:09 PM »

Toshi

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Re: What is Fundamental Analysis ?
« on: December 15, 2009, 10:01:04 PM »
The biggest part of fundamental analysis involves delving into the financial statements. Also known as quantitative analysis, this involves looking at revenue, expenses, assets, liabilities and all the other financial aspects of a company. Fundamental analysts look at this information to gain insight on a company's future performance. A good part of this tutorial will be spent learning about the balance sheet, income statement, cash flow statement and how they all fit together.

But there is more than just number crunching when it comes to analyzing a company. This is where qualitative analysis comes in - the breakdown of all the intangible, difficult-to-measure aspects of a company.

Toshi

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Re: What is Fundamental Analysis ?
« Reply #1 on: December 15, 2009, 10:05:21 PM »
Components of Fundamental Analysis

01) Fundamental Analysis: Qualitative Factors - The Company
02) Fundamental Analysis: Qualitative Factors - The Industry
03) Fundamental Analysis: Introduction to Financial Statements
04) Fundamental Analysis: Other Important Sections Found in Financial Filings
05) Fundamental Analysis: The Income Statement
06) Fundamental Analysis: The Balance Sheet
07) Fundamental Analysis: The Cash Flow Statement
08) Fundamental Analysis: A Brief Introduction To Valuation
09) Fundamental Analysis: Conclusion
« Last Edit: December 15, 2009, 10:07:02 PM by Toshi »

SC

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Re: What is Fundamental Analysis ?
« Reply #2 on: December 15, 2009, 10:56:00 PM »
Components of Fundamental Analysis

01) Fundamental Analysis: Qualitative Factors - The Company
02) Fundamental Analysis: Qualitative Factors - The Industry
03) Fundamental Analysis: Introduction to Financial Statements
04) Fundamental Analysis: Other Important Sections Found in Financial Filings
05) Fundamental Analysis: The Income Statement
06) Fundamental Analysis: The Balance Sheet
07) Fundamental Analysis: The Cash Flow Statement
08) Fundamental Analysis: A Brief Introduction To Valuation
09) Fundamental Analysis: Conclusion

Thank you Toshi.
Let us make this section sing.

Toshi

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Re: What is Fundamental Analysis ?
« Reply #3 on: December 17, 2009, 11:22:46 PM »
Qualitative Factors - The Company

Fundamental analysis seeks to determine the intrinsic value of a company's stock. But since qualitative factors, by definition, represent aspects of a company's business that are difficult or impossible to quantify, incorporating that kind of information into a pricing evaluation can be quite difficult.
Here are some of the company-specific qualitative factors that we should be aware of.

1) Management

Here are a few ways for you to get a feel for management:

a. Conference Calls

b. Management Discussion and Analysis (MD&A)

c. Ownership and Insider Sales

d. Past Performance


2)Corporate Governance


a.Financial and Information Transparency

b.Stakeholder Rights

c.Structure of the Board of Directors
« Last Edit: December 18, 2009, 09:19:29 PM by Toshi »

Toshi

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Re: What is Fundamental Analysis ?
« Reply #4 on: December 18, 2009, 09:17:58 PM »
Qualitative Factors - The Industry

Each industry has differences in terms of its customer base, market share among firms, industry-wide growth, competition, regulation and business cycles. Learning about how the industry works will give an investor a deeper understanding of a company's financial health.
The ingredintens of qualitative Factors are:

1)Customers
2)Market Share
3)ndustry Growth
4)Competition
5)Regulation


1)Customers:
Some companies serve only a handful of customers, while others serve millions. In general, it's a red flag (a negative) if a business relies on a small number of customers for a large portion of its sales because the loss of each customer could dramatically affect revenues.

2)Market Share:
Understanding a company's present market share can tell volumes about the company's business. The fact that a company possesses an 85% market share tells you that it is the largest player in its market by far.

3)ndustry Growth:

One way of examining a company's growth potential is to first examine whether the amount of customers in the overall market will grow. This is crucial because without new customers, a company has to steal market share in order to grow.

4)Competition:
Simply looking at the number of competitors goes a long way in understanding the competitive landscape for a company. Industries that have limited barriers to entry and a large number of competing firms create a difficult operating environment for firms.

5)Regulation:
Certain industries are heavily regulated due to the importance or severity of the industry's products and/or services. As important as some of these regulations are to the public, they can drastically affect the attractiveness of a company for investment purposes.n industries where one or two companies represent the entire industry for a region (such as utility companies), governments usually specify how much profit each company can make. In these instances, while there is the potential for sizable profits, they are limited due to regulation. 

Toshi

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Re: What is Fundamental Analysis ?
« Reply #5 on: December 19, 2009, 06:27:18 PM »
Introduction to Financial Statements

The massive amount of numbers in a company's financial statements can be bewildering and intimidating to many investors. On the other hand, if you know how to analyze them, the financial statements are a gold mine of information.

Financial statements are the medium by which a company discloses information concerning its financial performance. Followers of fundamental analysis use the quantitative information gleaned from financial statements to make investment decisions. Before we jump into the specifics of the three most important financial statements - income statements, balance sheets and cash flow statements - we will briefly introduce each financial statement's specific function, along with where they can be found.

Toshi

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Re: What is Fundamental Analysis ?
« Reply #6 on: December 19, 2009, 06:29:17 PM »
The Major Statements
The Balance Sheet
The balance sheet represents a record of a company's assets, liabilities and equity at a particular point in time. The balance sheet is named by the fact that a business's financial structure balances in the following manner:

Assets = Liabilities + Shareholders' Equity


Assets represent the resources that the business owns or controls at a given point in time. This includes items such as cash, inventory, machinery and buildings. The other side of the equation represents the total value of the financing the company has used to acquire those assets. Financing comes as a result of liabilities or equity. Liabilities represent debt (which of course must be paid back), while equity represents the total value of money that the owners have contributed to the business - including retained earnings, which is the profit made in previous years.

The Income Statement
While the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you could have a balance sheet for a month or even a day, but you'll only see public companies report quarterly and annually.

The income statement presents information about revenues, expenses and profit that was generated as a result of the business' operations for that period.

Statement of Cash Flows
The statement of cash flows represents a record of a business' cash inflows and outflows over a period of time. Typically, a statement of cash flows focuses on the following cash-related activities:

    *  Operating Cash Flow (OCF): Cash generated from day-to-day business operations
    *  Cash from investing (CFI): Cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment or long-term assets
    *  Cash from financing (CFF): Cash paid or received from the issuing and borrowing of funds

The cash flow statement is important because it's very difficult for a business to manipulate its cash situation. There is plenty that aggressive accountants can do to manipulate earnings, but it's tough to fake cash in the bank. For this reason some investors use the cash flow statement as a more conservative measure of a company's performance.

Toshi

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Re: What is Fundamental Analysis ?
« Reply #7 on: December 19, 2009, 06:32:31 PM »
Other Important Sections Found in Financial Filings

The financial statements are not the only parts found in a business's annual and quarterly SEC filings. Here are some other noteworthy sections: 
Management Discussion and Analysis (MD&A)

As a preface to the financial statements, a company's management will typically spend a few pages talking about the recent year (or quarter) and provide background on the company. This is referred to as the management discussion and analysis (MD&A). In addition to providing investors a clearer picture of what the company does, the MD&A also points out some key areas in which the company has performed well.

Don't expect the letter from management to delve into all the juicy details affecting the company's performance. The management's analysis is at their discretion, so understand they probably aren't going to be disclosing any negatives.

Here are some things to look out for:

    * How candid and accurate are management's comments?
    * Does management discuss significant financial trends over the past couple years? (As we've already mentioned, it can be interesting to compare the MD&As over the last few years to see how the message has changed and whether management actually followed through with its plan.)
    * How clear are management's comments? If executives try to confuse you with big words and jargon, perhaps they have something to hide.
    * Do they mention potential risks or uncertainties moving forward?

Disclosure is the name of the game. If a company gives a decent amount of information in the MD&A, it's likely that management is being upfront and honest. It should raise a red flag if the MD&A ignores serious problems that the company has been facing.

Toshi

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Re: What is Fundamental Analysis ?
« Reply #8 on: December 19, 2009, 06:35:08 PM »
The Auditor's Report
The auditors' job is to express an opinion on whether the financial statements are reasonably accurate and provide adequate disclosure. This is the purpose behind the auditor's report, which is sometimes called the "report of independent accountants".

By law, every public company that trades stocks or bonds on an exchange must have its annual reports audited by a certified public accountants firm. An auditor's report is meant to scrutinize the company and identify anything that might undermine the integrity of the financial statements.

The typical auditor's report is almost always broken into three paragraphs and written in the following fashion:

Independent Auditor's Report

Paragraph 1
Recounts the responsibilities of the auditor and directors in general and lists the areas of the financial statements that were audited.

Paragraph 2

Lists how the generally accepted accounting principles (GAAP) were applied, and what areas of the company were assessed.

Paragraph 3
Provides the auditor's opinion on the financial statements of the company being audited. This is simply an opinion, not a guarantee of accuracy.

While the auditor's report won't uncover any financial bombshells, audits give credibility to the figures reported by management.

Toshi

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Re: What is Fundamental Analysis ?
« Reply #9 on: December 21, 2009, 12:44:19 AM »
The Income Statement

The income statement is basically the first financial statement you will come across in an annual report or quarterly Securities And Exchange Commission (SEC) filing.

It also contains the numbers most often discussed when a company announces its results - numbers such as revenue, earnings and earnings per share. Basically, the income statement shows how much money the company generated (revenue), how much it spent (expenses) and the difference between the two (profit) over a certain time period.

When it comes to analyzing fundamentals, the income statement lets investors know how well the company’s business is performing - or, basically, whether or not the company is making money. Generally speaking, companies ought to be able to bring in more money than they spend or they don’t stay in business for long. Those companies with low expenses relative to revenue - or high profits relative to revenue - signal strong fundamentals to investors.

Revenue as an investor signal

Revenue, also commonly known as sales, is generally the most straightforward part of the income statement. Often, there is just a single number that represents all the money a company brought in during a specific time period, although big companies sometimes break down revenue by business segment or geography.The best way for a company to improve profitability is by increasing sales revenue.


What are the Expenses?
There are many kinds of expenses, but the two most common are the cost of goods sold (COGS) and selling, general and administrative expenses (SG&A). Cost of goods sold is the expense most directly involved in creating revenue. It represents the costs of producing or purchasing the goods or services sold by the company.

Profits = Revenue - Expenses
Profit, most simply put, is equal to total revenue minus total expenses. However, there are several commonly used profit subcategories that tell investors how the company is performing. Gross profit is calculated as revenue minus cost of sales.
Companies with high gross margins will have a lot of money left over to spend on other business operations, such as R&D or marketing. So be on the lookout for downward trends in the gross margin rate over time. This is a telltale sign of future problems facing the bottom line. When cost of goods sold rises rapidly, they are likely to lower gross profit margins - unless, of course, the company can pass these costs onto customers in the form of higher prices.

Conclusion
You can gain valuable insights about a company by examining its income statement. Increasing sales offers the first sign of strong fundamentals. Rising margins indicate increasing efficiency and profitability. It’s also a good idea to determine whether the company is performing in line with industry peers and competitors. Look for significant changes in revenues, costs of goods sold and SG&A to get a sense of the company’s profit fundamentals.

Toshi

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Re: What is Fundamental Analysis ?
« Reply #10 on: December 21, 2009, 11:49:13 PM »
The Balance Sheet

Investors often overlook the balance sheet. Assets and liabilities aren't nearly as sexy as revenue and earnings. While earnings are important, they don't tell the whole story.
The balance sheet highlights the financial condition of a company and is an integral part of the financial statements.

The Snapshot of Health
The balance sheet, also known as the statement of financial condition, offers a snapshot of a company's health. It tells you how much a company owns (its assets), and how much it owes (its liabilities). The difference between what it owns and what it owes is its equity, also commonly called "net assets" or "shareholders equity".

The balance sheet tells investors a lot about a company's fundamentals: how much debt the company has, how much it needs to collect from customers (and how fast it does so), how much cash and equivalents it possesses and what kinds of funds the company has generated over time.

The Balance Sheet's Main Three components
Assets, liability and equity are the three main components of the balance sheet. Carefully analyzed, they can tell investors a lot about a company's fundamentals.

Assets
There are two main types of assets: current assets and non-current assets. Current assets are likely to be used up or converted into cash within one business cycle - usually treated as twelve months. Three very important current asset items found on the balance sheet are: cash, inventories and accounts receivables.

Receivables are outstanding (uncollected bills). Analyzing the speed at which a company collects what it's owed can tell you a lot about its financial efficiency. If a company's collection period is growing longer, it could mean problems ahead. The company may be letting customers stretch their credit in order to recognize greater top-line sales and that can spell trouble later on, especially if customers face a cash crunch. Getting money right away is preferable to waiting for it - since some of what is owed may never get paid. The quicker a company gets its customers to make payments, the sooner it has cash to pay for salaries, merchandise, equipment, loans, and best of all, dividends and growth opportunities.

Non-current assets are defined as anything not classified as a current asset. This includes items that are fixed assets, such as property, plant and equipment (PP&E). Unless the company is in financial distress and is liquidating assets, investors need not pay too much attention to fixed assets. Since companies are often unable to sell their fixed assets within any reasonable amount of time they are carried on the balance sheet at cost regardless of their actual value. As a result, it's is possible for companies to grossly inflate this number, leaving investors with questionable and hard-to-compare asset figures.

Liabilities

There are current liabilities and non-current liabilities. Current liabilities are obligations the firm must pay within a year, such as payments owing to suppliers. Non-current liabilities, meanwhile, represent what the company owes in a year or more time. Typically, non-current liabilities represent bank and bondholder debt.

Look at the quick ratio. Subtract inventory from current assets and then divide by current liabilities. If the ratio is 1 or higher, it says that the company has enough cash and liquid assets to cover its short-term debt obligations.

                                             Quick Ratio = Current Assets - Inventories /Current Liabilities


Equity
Equity represents what shareholders own, so it is often called shareholder's equity. As described above, equity is equal to total assets minus total liabilities.

                                                              Equity = Total Assets – Total Liabilities

The two important equity items are paid-in capital and retained earnings. Paid-in capital is the amount of money shareholders paid for their shares when the stock was first offered to the public. It basically represents how much money the firm received when it sold its shares. In other words, retained earnings are a tally of the money the company has chosen to reinvest in the business rather than pay to shareholders. Investors should look closely at how a company puts retained capital to use and how a company generates a return on it.

Toshi

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Re: What is Fundamental Analysis ?
« Reply #11 on: December 22, 2009, 07:53:45 PM »
The Cash Flow Statement

The cash flow statement shows how much cash comes in and goes out of the company over the quarter or the year. At first glance, that sounds a lot like the income statement in that it records financial performance over a specified period. But there is a big difference between the two.
What distinguishes the two is accrual accounting, which is found on the income statement. Accrual accounting requires companies to record revenues and expenses when transactions occur, not when cash is exchanged. At the same time, the income statement, on the other hand, often includes non-cash revenues or expenses, which the statement of cash flows does not include.
Just because the income statement shows net income of $10 does not means that cash on the balance sheet will increase by $10. Whereas when the bottom of the cash flow statement reads $10 net cash inflow, that's exactly what it means. The company has $10 more in cash than at the end of the last financial period. You may want to think of net cash from operations as the company's "true" cash profit.
Because it shows how much actual cash a company has generated, the statement of cash flows is critical to understanding a company's fundamentals. It shows how the company is able to pay for its operations and future growth.
Indeed, one of the most important features you should look for in a potential investment is the company's ability to produce cash. Just because a company shows a profit on the income statement doesn't mean it cannot get into trouble later because of insufficient cash flows. A close examination of the cash flow statement can give investors a better sense of how the company will fare.

Cash Flows from Operating Activities

This section shows how much cash comes from sales of the company's goods and services, less the amount of cash needed to make and sell those goods and services. Investors tend to prefer companies that produce a net positive cash flow from operating activities. High growth companies, such as technology firms, tend to show negative cash flow from operations in their formative years. At the same time, changes in cash flow from operations typically offer a preview of changes in net future income. Normally it's a good sign when it goes up. Watch out for a widening gap between a company's reported earnings and its cash flow from operating activities. If net income is much higher than cash flow, the company may be speeding or slowing its booking of income or costs.

Cash Flows from Investing Activities
This section largely reflects the amount of cash the company has spent on capital expenditures, such as new equipment or anything else that needed to keep the business going. It also includes acquisitions of other businesses and monetary investments such as money market funds.

Cash Flow From Financing Activities
This section describes the goings-on of cash associated with outside financing activities. Typical sources of cash inflow would be cash raised by selling stock and bonds or by bank borrowings. Likewise, paying back a bank loan would show up as a use of cash flow, as would dividend payments and common stock repurchases.

Cash Flow Statement Considerations:
Savvy investors are attracted to companies that produce plenty of free cash flow (FCF). Free cash flow signals a company's ability to pay debt, pay dividends, buy back stock and facilitate the growth of business. Free cash flow, which is essentially the excess cash produced by the company, can be returned to shareholders or invested in new growth opportunities without hurting the existing operations.



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Re: What is Fundamental Analysis ?
« Reply #12 on: December 23, 2009, 02:41:15 PM »
Thank you and keep sharing

Toshi

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Re: What is Fundamental Analysis ?
« Reply #13 on: December 23, 2009, 08:55:38 PM »
A Brief Introduction To Valuation

While the concept behind discounted cash flow analysis is simple, its practical application can be a different matter. The premise of the discounted cash flow method is that the current value of a company is simply the present value of its future cash flows that are attributable to shareholders. Its calculation is as follows:




For simplicity's sake, if we know that a company will generate $1 per share in cash flow for shareholders every year into the future; we can calculate what this type of cash flow is worth today. This value is then compared to the current value of the company to determine whether the company is a good investment, based on it being undervalued or overvalued.
There are several different techniques within the discounted cash flow realm of valuation, essentially differing on what type of cash flow is used in the analysis. The dividend discount model focuses on the dividends the company pays to shareholders, while the cash flow model looks at the cash that can be paid to shareholders after all expenses, reinvestments and debt repayments have been made. But conceptually they are the same, as it is the present value of these streams that are taken into consideration.the difficulty lies in the implementation of the model as there are a considerable amount of estimates and assumptions that go into the model. As you can imagine, forecasting the revenue and expenses for a firm five or 10 years into the future can be considerably difficult. Nevertheless, DCF is a valuable tool used by both analysts and everyday investors to estimate a company's value.

Ratio Valuation
Financial ratios are mathematical calculations using figures mainly from the financial statements, and they are used to gain an idea of a company's valuation and financial performance. Some of the most well-known valuation ratios are price-to-earnings and price-to-book. Each valuation ratio uses different measures in its calculations. For example, price-to-book compares the price per share to the company's book value.

The calculations produced by the valuation ratios are used to gain some understanding of the company's value. The ratios are compared on an absolute basis, in which there are threshold values. For example, in price-to-book, companies trading below '1' are considered undervalued. Valuation ratios are also compared to the historical values of the ratio for the company, along with comparisons to competitors and the overall market itself.

Toshi

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Re: What is Fundamental Analysis ?
« Reply #14 on: December 23, 2009, 08:58:33 PM »
Fundamental Analysis: Conclusion

Whenever you’re thinking of investing in a company it is vital that you understand what it does, its market and the industry in which it operates. You should never blindly invest in a company.
One of the most important areas for any investor to look at when researching a company is the financial statements. It is essential to understand the purpose of each part of these statements and how to interpret them.


Let's recap what we've learned above:

    *  Financial reports are required by law and are published both quarterly and annually.
    * Management discussion and analysis (MD&A) gives investors a better understanding of what the company does and usually points out some key areas where it performed well.
    * Audited financial reports have much more credibility than unaudited ones.
    * The balance sheet lists the assets, liabilities and shareholders' equity.
    * For all balance sheets: Assets = Liabilities + Shareholders’ Equity. The two sides must always equal each other (or balance each other).
    * The income statement includes figures such as revenue, expenses, earnings and earnings per share.
    * For a company, the top line is revenue while the bottom line is net income.
    * The income statement takes into account some non-cash items, such as depreciation.
    * The cash flow statement strips away all non-cash items and tells you how much actual money the company generated.
    * The cash flow statement is divided into three parts: cash from operations, financing and investing.
    * Always read the notes to the financial statements. They provide more in-depth information on a wide range of figures reported in the three financial statements.

Offline Karuli

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Re: What is Fundamental Analysis ?
« Reply #15 on: January 07, 2010, 06:01:14 PM »
 Nice Fundamental Analysis?

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Re: What is Fundamental Analysis ?
« Reply #18 on: September 10, 2011, 03:34:01 PM »
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Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.

Earnings per Share – EPS
Price to Earnings Ratio – P/E
Projected Earning Growth – PEG
Price to Sales – P/S
Price to Book – P/B
Dividend Payout Ratio
Dividend Yield
Book Value
Return on Equity

No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.


it will be helpful if someone like poker or any of the other post the formulas for these tools and will be highly appreciated if gives example by posting the data of any company. :thanks:

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