FUNDAMENTAL ANALYSIS OF SHARES USING THE EXAMPLE OF KRKA, D. D.

In the diploma thesis, we present the basic principles of investing that do not change over time. Value can be assessed using financial fundamentals, albeit with a certain margin of error, as for most assets market prices cannot deviate from real values in the long term. In the diploma thesis, we describe investment methods in organised capital markets that are based on financial indicators and the analysis of company operations.

Problem

In the diploma thesis, we present the basic principles of investing that do not change over time. Value can be assessed using financial fundamentals, albeit with a certain margin of error, as for most assets market prices cannot deviate from real values in the long term.

Solution and Method

In the diploma thesis, we describe investment methods in organised capital markets that are based on financial indicators and the analysis of company operations. The aforementioned methods can be used to assess the value of various companies with certain adjustments, which were substantiated and demonstrated in the applied part of the diploma thesis using a concrete example of valuing the shares of Krka, d. d. The current financial crisis, which began at the end of 2007 and which also affected almost all capital markets around the world, has once again shown that the market values of financial investments deviated from real values.

From the Tulip Bulb Craze in the Netherlands in 1637 and the bursting of the South Sea Bubble in England in 1720, which were the first financial crises in the history of capitalism, right up to the present day, capital markets have demonstrated the capacity for self-correction, often at the expense of those who believe that the moment of reckoning will never come. There exists a whole range of research indicating that markets may not behave consistently and that stock market or price bubbles can emerge.

A stock market bubble is a type of investment phenomenon that demonstrates the fragile nature of human emotions, and occurs when investors do not have realistic expectations regarding the future values of shares. Market prices of shares move beyond their real values, which are determined by the fundamental characteristics of a company's operations. The postulate of intelligent investing is that an investor does not pay more for assets than they are worth.

In capital markets, we purchase financial assets because we expect to receive cash flow from them or to generate a certain profit in the future. Valuation must be supported by reality, which indicates that the price paid for a particular asset must reflect the expected cash flow to be generated.