What are the most common tools of fundamental analysis?

Analysts evaluate company financial data and develop numerous formula-based methodologies and models to determine the true worth of the stock price and the sustainability of corporate operations. It also examines a stock's future risks and returns performance. Some widely used tools are:

• Earnings per share (EPS) shows the company's health. High EPS means a high rate of return.

• The price-to-earnings (P/E) ratio shows how much an investor must pay relative to what he/she would earn from that stock. It checks whether the stock price is overvalued or undervalued.

• Return on equity (ROE) shows how efficiently the company uses its funds raised from equity and how much profit it can generate. A high ROE generally means a high return on investment.

• Dividend payout ratios show how much dividend the company is willing to pay to its shareholders from its current earnings.

• The price-to-cash flow (P/CF) ratio shows how much cash a company generates relative to its stock price. There are also various valuation models, like the discounted cash flow (DCF) approach, the capitalisation of cash flow approach, the dividend valuation model, peer valuations, etc.