Listed companies are interested in building value in order to document and strengthen their position in the market. The value of a company is not, of course, the only measure of the assessment of a company's activity, but it is a key characteristic in the fundamental analysis. Company value can be determined using one of several valuation methods like Asset-Basis, Yield-Basis Method or Fair Value Method. Usually, in practice, one or more of these methods are used in the valuation of company.
Another category that also occupies an important place in the fundamental analysis and permits assessment of the effects of the company's functioning in the market is the fundamental strength (or fundamental power) of the company.
Fundamental strength, just like the value of the company, is a complex concept that arises as a result of the company's functioning in the market. By definition, fundamental strength is not a directly measurable category but if one uses some assumptions it could be measured.
The aim of the paper is to examine the relationship between the value of a company, its fundamental strength and rates of return. The fundamental strength of the company was measured using the Fundamental Power Index (FPI) (Tarczynska-Luniewska 2013). In order to determine the value of the company: the market value of the company, book value, and profit multiplier were used. The study also includes rates of return for the surveyed companies.
Selected statistical methods (such as the mean, standard deviation, Pearson coefficient or Student-t test) were used. The data source was the Warsaw Stock Exchange (WSE) for stock prices of listed companies and Notoria Serwis for financial statements. The analysis covered the period 2010-2018.
Research shows that there is a link between the company's value, its fundamental strength and the rate of return. Knowledge of these connections can be an important factor supporting the investment process using the methods of fundamental analysis (including building investment strategies). This may also reduce the risk of investment.