The lessons start by introducing you to the concept of “Fundamental Analysis,” the goal of which is to help you determine if a company is overvalued or undervalued in the marketplace. It briefly introduces several different criteria you might want to look at, including:
Fair market values of assets & liabilities (found on balance sheets, amount of cash on hand, and short term & long term debt)
Income & expenses (found on the company’s income statement, this is the amount of revenue and the cost incurred to generate that revenue, the difference is the overall profit or loss)
Cash flow statement (how much cash came in during an accounting period, from operations, investments or loans, and where cash went -- to meet expenses, pay dividends or pay off debt)
It’s suggested that you can use this information to determine the future value and earnings of a company and whether or not it’s undervalued in the marketplace. Already I’m feeling like I’m probably not going to be able to use any of this, even though this is starting with what’s probably the most basic information. The Fidelity video teacher doesn't answer questions, nor does she give any real world examples.
To make sure I can at least find these things, I’ll look at ZAP, an electric car company of some sort in which I already own 3500 shares (purchased two years ago without knowing anything about the company, based on the advice of a friend). Their information was easy enough to find on fidelity. Finding this information, which I have no idea what to do with makes me feel somewhat successful.
The next FA section moves on to tell you “why & when” you might want to use fundamental analysis, assuming that you can understand it. You can potentially determine:
Does a company’s total market value reflect the value of it’s components? To do this, you can theoretically isolate the assets on the balance sheet and assess the value of its components (current assets = cash, receivables, inventory and long-term investments). Then add up the assets and subtract liabilities for the total value of the company.
"If you evaluate the present value of stock to be $40, but the market value to be $30, you would consider buying the stock, as it may be undervalued." It seems like this view is too simplistic to truly yield an advantage in the market. So I looked at Zap’s balance sheet to try and do this. If the current assets for ZAAP are at $5,773,000 and their current liabilities are $3,193,000, then that makes the present value of ZAAP $2,587,000. Then you divide that by the number of outstanding shares (215,356,000) and you find out that the value of one share of stock is: $.01.
So either I’m doing this wrong (which is a strong possibility), or ZAAP is a piece of shit, based just on this. Maybe it just means that the present value doesn’t reflect what the market anticipates the future value will be. Apparently watching five minutes of video isn’t sufficient to give me even a modest grasp of any concept. Luckily there are seven more sections on Fundamental Analysis.
Idiot Lessons (things I had to look up because I can’t understand anything else before I know these basic things):
Earnings vs. Revenue - Revenue is the gross amount received before deductions. Earnings is revenues less expenses.
Market Capitalization - The total market value of a company’s outstanding stock multiplied by the current market price of one share.
I don't feel very smart.
No comments:
Post a Comment