Fundamental Analysis

The discount rate at which the net present value of an investment becomes zero, indicating the profitability of an investment as an annual rate. A higher IRR means better investment efficiency. It is widely used in real estate investment and project evaluation as well.

Investment ratings given to individual stocks by securities company analysts. They are rated in levels such as "buy," "neutral," and "sell," with target prices also provided. The aggregate of multiple analysts' ratings is called the consensus.

An indicator showing how much profit a company generates relative to shareholders' equity. Calculated as ROE = Net Income / Shareholders' Equity x 100. Generally, 10% or above is considered efficient management.

An indicator showing how much profit a company generates relative to its total assets. Calculated as ROA = Net Income / Total Assets x 100. Used alongside ROE to evaluate management efficiency.

A profit metric adding interest, depreciation, and amortization to pre-tax income, used to compare companies' fundamental earning power. It eliminates the effects of differences in countries and accounting standards, making it suitable for global company comparisons.

Net income divided by the number of outstanding shares, showing how much profit is generated per share. Higher EPS indicates stronger earning power. It is a key metric that forms the basis for PER calculations.

An indicator calculated by dividing enterprise value (EV) by EBITDA (earnings before interest, taxes, depreciation, and amortization). It eliminates differences in accounting standards across countries and industries, making it widely used for global company comparisons. Generally, 8-10x is considered a benchmark.

The total income a company earns from selling products or services. The simplest indicator of a company's size and growth, also called the "top line." Revenue growth rate is fundamental data for assessing a company's growth potential.

Shows the actual cash flow generated from core business activities. Caution is needed when a company is profitable but cash is not increasing. Companies with stable positive operating cash flow are considered financially healthy.

Profit from core business activities, calculated by subtracting cost of goods sold and selling/administrative expenses from revenue. An important indicator of a company's core earning power. Companies with steadily growing operating income are attractive investments.

An indicator showing how many times the stock price is compared to earnings per share (EPS). Calculated as PER = Stock Price ÷ EPS. Lower PER suggests undervaluation, higher suggests overvaluation, but averages differ by industry.

An indicator showing how many times the stock price is compared to book value per share (BPS). Calculated as PBR = Stock Price ÷ BPS. When PBR falls below 1, theoretically it would be more profitable for shareholders to dissolve the company.

An indicator of total company value calculated by adding interest-bearing debt to market capitalization and subtracting cash. Calculated as EV = Market Cap + Interest-Bearing Debt - Cash. Also used as a guideline for acquisition prices in M&A transactions.

Projected figures for revenue and profit that companies forecast for the next quarter or fiscal year. There are company-issued forecasts announced at earnings and analyst consensus estimates. The gap between actual results and forecasts can significantly move stock prices.

Profit calculated by adding non-operating income (such as interest received) to operating income and subtracting non-operating expenses (such as interest paid). It shows profit from the company's normal business activities, including financial operations beyond the core business.

A preliminary earnings report published by companies every quarter. It contains actual results and forecasts for revenue, operating income, and net income, significantly affecting stock prices. Stock prices can move sharply on earnings announcement dates.

An accounting treatment where the book value of an asset is written down to its market value when the asset's value has significantly declined. Recording large impairment losses is a sign of deteriorating performance and often negatively impacts the stock price.

A quarterly company data book published by Toyo Keizai, officially called "Kaisha Shikiho." It features performance data and original assessments by reporters for all listed companies, serving as a bible for Japanese individual investors.

The ratio of shareholders' equity to total assets, indicating a company's financial soundness. A higher equity ratio means less dependence on borrowing and more stable management. Generally, 40% or above is considered healthy.

When a company repurchases its own shares from the market. As the number of outstanding shares decreases, the value per share increases, which is a positive factor for the stock price. It is a shareholder return measure alongside dividends, and its announcement is generally received as positive news.

The final profit after subtracting all expenses (including taxes) from all revenues. Also called "net profit" or "bottom line." It is the indicator of a company's ultimate earning power, used in calculating EPS and ROE.

A method of analyzing groups of companies in the same industry (sector). Since promising sectors change with economic cycles, it is used in sector rotation strategies. Average PER and growth rates by industry serve as useful references.

Performance data such as revenue and profit broken down by business division. It reveals which businesses are growing and which are underperforming. It is a particularly important source of information when analyzing diversified companies.

When a company issues new shares to raise capital. While some capital increases are positive for business expansion, the increase in outstanding shares dilutes existing shareholders' holdings and is generally a negative factor for the stock price.

The ratio of interest-bearing debt divided by shareholders' equity, indicating a company's financial leverage. Below 1x means equity exceeds debt, suggesting financial stability. The appropriate level varies by industry.

The amount by which the acquisition price exceeds the net assets of the acquired company during M&A. It reflects intangible values such as brand power and technological capabilities. Investors pay close attention as goodwill impairment can lead to significant losses.

The ratio showing how much of net income is returned to shareholders as dividends. Calculated as Payout Ratio = Total Dividends / Net Income x 100. If too high, less funds may be available for future growth investments.

The ratio of annual dividends per share divided by the stock price. Calculated as Dividend Yield = Annual Dividend / Stock Price x 100. Useful for comparison with bank deposit interest rates, and an important indicator for high-dividend stock investing.

A model that calculates the theoretical stock price by discounting future dividends to present value. It is suitable for valuing mature companies with stable dividends. The key to analysis lies in setting the dividend growth rate and discount rate.

Net assets (assets minus liabilities) divided by the number of outstanding shares. It shows the theoretical amount distributed per share if the company were dissolved. It forms the basis for PBR calculations.

An indicator dividing market capitalization by annual revenue, showing how many times the stock price is valued relative to sales. Used to evaluate growth companies that are not yet profitable, serving as an alternative when PER cannot be used.

An indicator calculated by dividing the stock price by cash flow per share. Similar to PER but evaluates based on actual cash flow rather than accounting profits, providing a more realistic company valuation. It is also suitable for international comparisons.

The funds a company can freely use after subtracting investment cash flow (such as capital expenditure) from operating cash flow. Used for dividend payments and debt repayment. Companies with consistently large free cash flow have capacity for shareholder returns.

An indicator dividing PER by earnings growth rate, allowing valuation assessment that accounts for growth. Calculated as PEG Ratio = PER / Earnings Growth Rate. Below 1 is considered undervalued, above 2 overvalued. Particularly useful for evaluating growth stocks.

A detailed disclosure document that listed companies are required to submit annually. It includes financial statements, business descriptions, risk information, and executive compensation. Anyone can view them for free on EDINET.

A general term for borrowings and bonds that require interest payments. Companies with large interest-bearing debt face increased burden when interest rates rise, elevating business risk. Financial health is assessed by the ratio of interest-bearing debt to equity (D/E ratio).

Financial statements that consolidate the parent company with its subsidiaries and affiliates as a whole corporate group. They reveal the overall picture that cannot be seen from individual company statements. It is important to check consolidated figures when making investment decisions.