FUNDAMENTAL FINANCIAL ANALYSIS IN PREDICTING BEST AND WORST INVESTMENT ALTERNATIVES
DOI:
https://doi.org/10.4270/ruc.20128Keywords:
Fundamental analysis. Financial-economic ratios. Company value.Abstract
This paper investigates whether the Fundamental Financial Analysis (FFA) is able to segregate groups of best and worst investment alternatives from the prediction of changes in market-value of non-financial companies listed in Bolsa de Valores de São Paulo (BOVESPA). The study samples correspond to 2/3 of the non-financial companies with available data in the Economática database in the years 2005, 2006 and 2007, and they are divided in two groups: Losers and Winners. 23 traditional Financial-Economic Ratios (FER), commonly used by analysts and researchers in assessing investment opportunities, were selected. The econometric treatment of data was performed using the Minimum Chi-Square Rule and the Discriminant Analysis. It was found that a very small number of FER showed statistic significance to the differentiation between the companies of the samples. Nevertheless, the classifications predicted correctly in the three years reached satisfactory levels, indicating that the use of FFA contributes to improve the performance of investment decisions. It is concluded that it is possible to accept the hypothesis that FFA is able to predict changes in company value, contributing to the choice between better and worse investment alternatives in the Brazilian Stock Market.
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