Stock Analysis Techniques
Stock Analysis Techniques
Stock analysis can be formed in a number of ways, but the end goal is determining a stocks value.
As a brief summary, these are the stock value techniques most often used in the Australian stock market:
Discounted cash flow - is the most complex of valuation techniques but also among the most commonly used in stock analysis.
Earnings before interest, tax, depreciation and amortisation (EBITDA) should be used when most comparable companies are based overseas. For example, analysts rating telecommunications companies will often use this technique.
Price-to-earnings ratio one of the most commonly used valuation methods for stock analysis. P/E ratios are used when companies have relatively stable earnings and there are a number of comparable companies in the local market. Banks are often valued according to P/E ratios.
Net realisable value is used for stock analysis when things get gloomy. An analyst will value a company according the amount the companys assets are worth if sold (rather than the earning these assets generate) when the company is making sustained losses or is close to liquidation.
These stock analysis techniques are all types of fundamental analysis, the pursuit of getting to the fundamental heart of a stock and analyse its worth.
Fundamental analysis observes the way a company runs analysing the financial data that is fundamental to a company its earnings, its profits, its dividends.
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