389 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
[email protected] *COPORGEST, SA, Av. da Liberdade 245, 9º C 1250-143Lisbon, Portugal
[email protected] Abstract - In this paper we discuss the fundamental foreign competition in a particular sector in order analysis by covering a number of studies in this field of to identify the best company of the sector. research. This constitutes a useful tool to evaluate the ii) Bottom-up approach: in this method, the analyst companies’ financial performance. Particularly, the starts the searching analysis within a specific discussion in this paper illustrates how this kind of sector irrespective of its industry/region. approach can help in analyzing a companies’ stock price. Additionally, a debate on its potentialities is also The fundamental analysis is carried out with the provided. aim of predicting company’s future performance. It is based on the belief that the market price of an asset Keywords – Fundamental Analysis, Return on Equity, tends to move towards its “real value” or its “intrinsic Return on Investment, Price Earnings Ratio, Price to Book value”. Thus, if the intrinsic value of an asset is Value higher than its market value, there may be a situation where it is time to buy. Otherwise, investors should 1. Introduction sell. This paper focuses on the important issue of In the next section, the theoretical framework of fundamental analysis, where a selection of ratios is the fundamental analysis is reviewed.