There are a few key metrics that investors should keep in mind when adding new securities to their portfolio. We will show you the most important share key figures from the fundamentals analysis, why they are important for buying shares and what is behind them.
Why beginners benefit from key figures when valuing stocks
Beginners in stock trading make the decision which blocks of stocks to buyor often do not sell easily. Risks cannot be completely ruled out when investing in stocks, but investors can reduce these risks to a calculable level. The most important tool for valuing stocks is fundamental analysis (also called fundamental analysis). By definition, fundamental analysis is a form of stock analysis that relies on key company metrics such as earnings, sales and cash flow. The aim is to calculate the “fair value” (value) of a company and its shares. In order to determine this, investment professionals check numerous share ratios as part of the analysis. Analyzing stocks based on key figures can increase the chance of finding stocks with a positive price development.
GOOD TO KNOW: The foundation analysis is a comparatively complex process for stock market professionals. To evaluate the profitability of a company, not only the individual key figures but also the economic environment are considered as part of a global analysis. In addition to the individual values, experts also analyze the respective industry.
WHICH METRICS ARE IMPORTANT FOR STOCKS
The following key figures give you an overview of the relationship between company and share price development of a stock corporation.
1. The price-earnings ratio (P / E)
The price-earnings ratio of a share is one of the most well-known figures in the stock valuation.
For this purpose, the current price of the share is divided by the company profit of the previous year. In a much simplified way, when determining the company profit, also known as the annual surplus, the sales revenues are compared with the expenses. If the expenses outweigh the revenues, one speaks of an annual deficit. The company made a loss in the period under review. Determining a P / E ratio would not be helpful in this case.
Good to know: You can find current prices and important figures in our comdirect share informer.
2. The equity ratio (EKQ)
The equity ratio is an important part of risk analysis when valuing stocks. The rate is, among other things, an indicator of how solidly a company is financed. The EKQ is also simply calculated:
The total capital is formed from equity and debt. Debt capital is capital that is made available to companies by third parties, e.g. banks in the form of loans with different terms. Equity describes the financial resources that the owner (s) brought into the company. This also includes undistributed profits that are retained by the company for investment.
What does the EKQ say?
A high equity ratio is assessed as positive, as the company finances itself predominantly from its own resources and does not, or only to a small extent, rely on outside capital.
The higher a company’s equity ratio, the lower the probability of insolvency and the higher the creditworthiness. The higher credit rating in turn makes it easier for companies to raise outside capital on the capital market.
IMPORTANT: It is difficult to compare the equity ratios of companies from different industries. For example, the equity requirements of financial companies are, on average, significantly lower than those of industrial companies. So when you analyze the EKQ, it should always be done in an industry comparison.
GOOD TO KNOW: You can find out how high a company’s equity is in the respective quarterly reports or balance sheets that companies regularly publish.
3. The price-to-book value ratio (KBV)
To find out how a company’s equity is related to its market capitalization, you can calculate the price-to-book ratio: KBV = share price / book value of the share
The book value corresponds to the equity, which is divided by the number of shares issued. It thus indicates the ratio of equity to the number of shares.
4. The price-to-sales ratio (KUV)
The P / E ratio provides information about how highly a company is valued on the stock exchange. But not every company shows a profit. While the profit of a company can be embellished or diminished, the turnover can hardly be manipulated.
To calculate the price-sales ratio (KUV), the price per share is divided by the sales per share.
5. Price to Cash Flow Ratio (KCV)?
The KCV ratio indicates how high each liquid euro is valued on the stock exchange. It is calculated according to the formula: price per share divided by cash flow per share.
What does the KCV say?
The price to cash flow ratio (KCV) can hardly be manipulated. The KCV can therefore be used in addition to the KGV. The term cash flow describes the inflow of money during a period. It marks the balance of deposits and withdrawals during a financial year. The cash flow is systematically higher than the profit, since taxes, interest and depreciation are not taken into account. The cash flow shows the liquidity of a company. As with the P / E method, the lower the P / E, the cheaper a share is. Value investors rely on values with a KCV of less than ten.
6. The dividend yield
The dividend yield gives investors the opportunity to find out the relationship between the share price and the dividend paid or announced. The dividend yield is published by many public companies for investors.
GOOD TO KNOW: The dividend yield can be calculated either with the last dividend paid out or with the announced dividend. Both methods have their advantages and disadvantages. Since the forecast dividend can change by the end of the year, the dividend yield should also be seen more as a forecast and not as a benchmark. If the calculation is carried out with the “old” dividend, the figures are fixed, but possible conclusions about the upcoming dividend payment are also speculative. When publishing the dividend yield, companies usually use the current share price and the last dividend paid.
What does the dividend yield say?
If you bought the stock at a cheaper price than the current one, your dividend yield may also increase. If the share price is higher, your dividend yield is likely to decrease. It is important that you analyze the development of the dividend yield over a period of several years. That is the only way to guarantee that the number will continue to rise steadily. You should also take into account that you are not entitled to a return when you buy shares. The shareholders’ meeting will determine whether a return will be paid.