InvestorQ : What is the bottom line? Once I complete all this fundamental analysis, what is the final answer that I get and how do I decide on investment?
Aashna Tripathi made post

What is the bottom line? Once I complete all this fundamental analysis, what is the final answer that I get and how do I decide on investment?

Answer
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Arya Nanda answered.
1 year ago


Fundamental analysis typically culminates with the valuation of the company. Normally valuations are done based on the discount cash flow (DCF) method. Future cash flows estimated to be generated by the company are projected up to a period of 5 years. At the end of 5 years the perpetual value of the company is calculated. Then all these are discounted back to the current year using the cost of capital as the rate of discount. (The cost of capital is the weighted average of the cost of equity and the cost of debt). The resultant figure is the preliminary valuation of the company. Once the preliminary valuation is arrived at, the actual valuation is estimated by considering 3 key factors…

Qualitative factors like brands, networks, corporate governance standards etc.

Alignment with the P/E ratio of the industry in India and globally

Alignment of the stock price with the historical market price of the stock