The Value Chronicles Episode 2 – The Fundamentals
blog·@boontjie·
0.000 HBDThe Value Chronicles Episode 2 – The Fundamentals
<html><p><center><img src="https://steemitimages.com/DQmYHDyVQFqXR8dnKwMBYZaYQSfY9ekDwgyE1z6y6T26Yw9/image.png" width="606" height="405"/></center></p> <p>An apt title, the fundamentals of crypto analysis, fundamental analysis. This aims to place a value on a stock/crypto based on earnings, growth and future value in the market.</p> <h2><strong>A short explanation of ratios</strong></h2> <p>People are people though and it’s difficult to compare one company to another. So for example one company selling tons of clothes and the other one sells cigarettes. The stock prices are $5 and $10. Both are showing the same profit of $10 million. Which do you buy? First you have to standardize the companies in companies in some way.</p> <p>The answer is financial ratios!! Ratios??</p> <p>To explain imagine two pots of coffee for sale weighing 1kg and 2kg, they cost $5 and $8 respectively, which is cheaper. Well the first pot $5 / kg and the second pot is $8 / 2kg = $4 / kg.</p> <p>Clearly the 2kg pot is cheaper. There you have it , you have just created your very first ratio, the price to weight ratio! Easy peasy.</p> <p>In reality there won’t be two pots of coffee, but different pots of coffee (brands) and a table. It is possible to standardize coffee and tables, but they are never 100% comparable. This is the reason we have different industry groupings, e.g. Financials and Agriculture. To keep the apples close to apples and pears close to pears. Scuse the pun :)</p> <h2><strong>Let’s get down to business</strong></h2> <p>The ratios can be broadly separated into 2 distinct categories:</p> <ul> <li>Ratios that provide a picture of the current value of a crypto/share</li> <li>Ratios that provide a future value of the current value of a crypto/share</li> </ul> <p>In general it is needed to look at both of the ratios categorized above together to decide whether a crypto is over-priced, under-priced or just plain a bargain! </p> <p><br></p> <blockquote>As they say price is what you pay for, value is what you get. Price leads to value and you need make sure you pay less and get more. </blockquote> <p><br></p> <p>I will discuss ratios that determine the current value of a share in the next episode. </p> <p><br></p> <p>I hope you enjoyed the instalment, till next time </p> <p>Tinus</p> <p><br></p></html>