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The Fundamental Analysis: an Overview

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Submitted By cobala551
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Int. J Latest Trends Fin. Eco. Sc. Vol‐3 No. 1 March, 2013

The Fundamental Analysis: An Overview
Sónia R. Bentes#, Raúl Navas*
ISCAL, Av. Miguel Bombarda 20, 1069-035 Lisbon, Portugal smbentes@iscal.ipl.pt * COPORGEST, SA, Av. da Liberdade 245, 9º C 1250-143Lisbon, Portugal rdnavas@gmail.com
Abstract - In this paper we discuss the fundamental analysis by covering a number of studies in this field of research. This constitutes a useful tool to evaluate the companies’ financial performance. Particularly, the discussion in this paper illustrates how this kind of approach can help in analyzing a companies’ stock price. Additionally, a debate on its potentialities is also provided. Keywords – Fundamental Analysis, Return on Equity, Return on Investment, Price Earnings Ratio, Price to Book Value
#

foreign competition in a particular sector in order to identify the best company of the sector. ii) Bottom-up approach: in this method, the analyst starts the searching analysis within a specific sector irrespective of its industry/region. The fundamental analysis is carried out with the aim of predicting company’s future performance. It is based on the belief that the market price of an asset tends to move towards its “real value” or its “intrinsic value”. Thus, if the intrinsic value of an asset is higher than its market value, there may be a situation where it is time to buy. Otherwise, investors should sell. In the next section, the theoretical framework of the fundamental analysis is reviewed. The paper ends with a section where the main conclusions are drawn.

1.

Introduction

This paper focuses on the important issue of fundamental analysis, where a selection of ratios is discussed on a long-term basis. Our study aims to provide a critical analysis of the state of the art of the relevant literature.

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