A number of market players feel that the bourse does not follow company fundamentals and instead is driven largely by speculation. While this may be the case during bull runs, investing in fundamentals always comes through when the bear takes control.
Company fundamentals are reported through ratios calculated from a company’s income statement and balance sheet. The ratios mainly capture the company’s profitability, liquidity, Operating efficiency, risk profile and growth potential. Most of this information can thus be picked out from the company’s financial reports. Other information however will be determined by other socio economic factors that affect the company’s performance.
Profitability
This usually captures the company’s profits, what makes up the profits and how this relates to the income statement. Profits for the reporting period should be compared to profits of the previous reporting period in order to capture the growth for the period. It should also be compared to a series of other similar periods over time in order to capture the trend. Another comparison should be between other similar sized companies in the industry in order to pick out the company’s standing within the industry, and also against the industry average..
Liquidity
This is used to determine the company’s ability meet its short term obligations as they come through. This also should be analyzed as the profitability by comparing the previous period’s performance, performance over a series of periods, and against other similar sized companies in the industry as well as against the industry average.
Operating performance
This helps in determining management’s efficiency and effectiveness in utilizing what the company has ie the assets and capital to generate revenue and profits. Similar comparisons are done as those on profitability and liquidity.
Risk profile
This looks at both Financial Risk exposure which analyses a company’s use of debt against its equity, the firm’s ability to repay its debt obligation and the debt structure, as well as Business Risk exposure which captures the company’s operating income uncertainty resulting from variability of sales and production costs.
Growth Potential
Company growth is a function of a large number of factors both controllable by the company, and some outside the control of the company. The company’s dividend policy, the economic environment, political arena, interest rate environment and even the weather pattern all have an impact on companies’ growth prospects. It thus becomes quite difficult to determine, and analysts usually use the information that can be determined such as the dividend policy, and information projections such as economic growth and interest rate environment to determine the growth potential.
MARKET REVIEW
The bourse is still treading uphill as evidenced by the continued price appreciations across the board. On yesterday’s trading, only 21% of the counters recorded declines as 51% edged higher with the magnitude of appreciation being much higher than the declines.
Nation media was the day’s highest climber, up Kshs. 16 to close at Kshs. 236. ICD Topped up Kshs. 8 to close at an average of Kshs. 315 after having hit a high of Kshs. 320. Bamburi seems to have turned around its loosing trend and was up Kshs. 6 to close at Kshs. 179.
The finance counters on the other hand seem to be succumbing to profit taking. Jubilee had the largest slip down Kshs. 8 to close at Kshs. 182 while KCB shed Kshs. 4 to close at Kshs. 193. Barclays Bank closed Kshs. 2 lower at Kshs. 324.
Company fundamentals are reported through ratios calculated from a company’s income statement and balance sheet. The ratios mainly capture the company’s profitability, liquidity, Operating efficiency, risk profile and growth potential. Most of this information can thus be picked out from the company’s financial reports. Other information however will be determined by other socio economic factors that affect the company’s performance.
Profitability
This usually captures the company’s profits, what makes up the profits and how this relates to the income statement. Profits for the reporting period should be compared to profits of the previous reporting period in order to capture the growth for the period. It should also be compared to a series of other similar periods over time in order to capture the trend. Another comparison should be between other similar sized companies in the industry in order to pick out the company’s standing within the industry, and also against the industry average..
Liquidity
This is used to determine the company’s ability meet its short term obligations as they come through. This also should be analyzed as the profitability by comparing the previous period’s performance, performance over a series of periods, and against other similar sized companies in the industry as well as against the industry average.
Operating performance
This helps in determining management’s efficiency and effectiveness in utilizing what the company has ie the assets and capital to generate revenue and profits. Similar comparisons are done as those on profitability and liquidity.
Risk profile
This looks at both Financial Risk exposure which analyses a company’s use of debt against its equity, the firm’s ability to repay its debt obligation and the debt structure, as well as Business Risk exposure which captures the company’s operating income uncertainty resulting from variability of sales and production costs.
Growth Potential
Company growth is a function of a large number of factors both controllable by the company, and some outside the control of the company. The company’s dividend policy, the economic environment, political arena, interest rate environment and even the weather pattern all have an impact on companies’ growth prospects. It thus becomes quite difficult to determine, and analysts usually use the information that can be determined such as the dividend policy, and information projections such as economic growth and interest rate environment to determine the growth potential.
MARKET REVIEW
The bourse is still treading uphill as evidenced by the continued price appreciations across the board. On yesterday’s trading, only 21% of the counters recorded declines as 51% edged higher with the magnitude of appreciation being much higher than the declines.
Nation media was the day’s highest climber, up Kshs. 16 to close at Kshs. 236. ICD Topped up Kshs. 8 to close at an average of Kshs. 315 after having hit a high of Kshs. 320. Bamburi seems to have turned around its loosing trend and was up Kshs. 6 to close at Kshs. 179.
The finance counters on the other hand seem to be succumbing to profit taking. Jubilee had the largest slip down Kshs. 8 to close at Kshs. 182 while KCB shed Kshs. 4 to close at Kshs. 193. Barclays Bank closed Kshs. 2 lower at Kshs. 324.
1 comment:
The stock market has always and will always be run on speculation only. Speculation could be based on fact or distorted information. Still it's all speculation. I personally think it would be a waste of time to try to change this.
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