Fundamental analysis is a method of evaluating a stock by analyzing various financial and economic factors that could affect its intrinsic value. Investors use fundamental analysis to make informed decisions about whether a stock is overvalued or undervalued. Here’s a simple explanation of each metric along with an example:

Market Valuation:

Market Capitalization: The total market value of a company’s outstanding shares of stock. It is calculated by multiplying the current stock price by the total number of outstanding shares.
 Example: If a company has 1 million shares outstanding, and the current stock price is $50, the market capitalization would be $50 million.

PricetoEarnings Ratio (P/E): The ratio of a company’s stock price to its earnings per share (EPS). It provides an indication of how much investors are willing to pay for each dollar of earnings.
 Example: If a stock is trading at $100 and has an EPS of $5, the P/E ratio is 20 (=$100/$5).

PricetoBook Ratio (P/B): Compares a company’s market value to its book value (total assets minus total liabilities).
 Example: If a company has a market capitalization of $200 million and a book value of $100 million, the P/B ratio is 2 (=$200 million/$100 million).


Financial Performance:

Revenue Growth: The percentage increase in a company’s revenue over a specific period.
 Example: If a company’s revenue was $100 million last year and $120 million this year, the revenue growth rate is 20%.

Profit Margin: The percentage of revenue that turns into profit after expenses.
 Example: If a company has a net profit of $10 million and revenue of $50 million, the profit margin is 20% (=$10 million/$50 million).

Return on Equity (ROE): Measures a company’s profitability by calculating how much profit it generates with shareholders’ equity.
 Example: If a company has a net income of $15 million and shareholders’ equity of $100 million, the ROE is 15% (=$15 million/$100 million).


Debt and Solvency:

DebttoEquity Ratio: Compares a company’s total debt to its shareholders’ equity.
 Example: If a company has $50 million in debt and $100 million in equity, the debttoequity ratio is 0.5 (=$50 million/$100 million).

Interest Coverage Ratio: Measures a company’s ability to cover its interest expenses with its earnings.
 Example: If a company has $20 million in earnings before interest and taxes (EBIT) and $5 million in interest expenses, the interest coverage ratio is 4 (=$20 million/$5 million).


Dividend Yield:
 Dividend Yield: The annual dividend income expressed as a percentage of the stock’s current price.
 Example: If a stock pays an annual dividend of $2 per share and the stock price is $50, the dividend yield is 4% (=$2/$50).
 Dividend Yield: The annual dividend income expressed as a percentage of the stock’s current price.
Here’s a table summarizing the metrics:
Metric  Formula  Example 

Market Valuation  
Market Capitalization  Stock Price x Outstanding Shares  $50 x 1 million = $50 million 
PricetoEarnings Ratio (P/E)  Stock Price / Earnings per Share (EPS)  $100 / $5 = 20 
PricetoBook Ratio (P/B)  Market Cap / Book Value  $200 million / $100 million = 2 
Financial Performance  
Revenue Growth  [(Current Revenue – Last Year’s Revenue) / Last Year’s Revenue] x 100  [(120 – 100) / 100] x 100 = 20% 
Profit Margin  (Net Profit / Revenue) x 100  ($10 million / $50 million) x 100 = 20% 
Return on Equity (ROE)  Net Income / Shareholders’ Equity  $15 million / $100 million = 15% 
Debt and Solvency  
DebttoEquity Ratio  Total Debt / Shareholders’ Equity  $50 million / $100 million = 0.5 
Interest Coverage Ratio  EBIT / Interest Expenses  $20 million / $5 million = 4 
Dividend Yield  
Dividend Yield  (Annual Dividend per Share / Stock Price) x 100  ($2 / $50) x 100 = 4% 
Note: All examples are simplified and for illustrative purposes only. Realworld financial analysis requires a more comprehensive evaluation.