Finances 101
The exercises presented throughout this book are related to historical financial data and require the reader to have some basic understanding of financial markets and reports.
Fundamental analysis
Fundamental analysis is a set of techniques to evaluate a security—stock, bond, currency, or commodity—that entails attempting to measure its intrinsic value by examination related to both macro and micro, financial and economy reports. Fundamental analysis is usually applied to estimate the optimal price of a stock using a variety of financial ratios.
Numerous financial metrics are used throughout this book. Here are the definitions of the most commonly used metrics [A:16]:
- Earnings per share (EPS): This is the ratio of net earnings to the number of outstanding shares.
- Price/Earnings ratio (PE): This is the ratio of the market price per share to earnings per share.
- Price/Sales ratio (PS): This is the ratio of market price per share over gross sales or revenue.
- Price/Book value...
