Stock Analysis 101

Stock Analysis 101: Fundamental Analysis

Successful stock investments require knowledge, planning, and understanding. Investment decisions can have a significant impact on the future of your financial success. Fundamental analysis is the first step used to determine whether you are on the road towards a worthwhile investment choice. So, let’s get down to the basics and educate yourself in the most important aspects of fundamental analysis.

The School of Stock Analysis

When it comes to stock analysis, there are two main branches of understanding. Fundamental analysis and technical analysis are two different approaches to determine how your stock investments will act. Fundamental analysis refers to the concrete information used to determine the true value of a company’s business stock. Technical analysis differs from fundamental because it sets aside the true value and looks at the way pure market factors can affect a stock’s future movement.

Fundamental analysis is a good determination for stock investment because it can be “fundamental” to your ability to make money through the stock market. When you look at the fundamentals of a business, you are analyzing its financial health. Looking at a corporate business, fundamental analysis will help you determine whether a company has the potential to give you a return on your investment.

Important Business Data Points

A company’s financial statements are one of the most crucial points of information when it comes to investment potential. Income statements, balance sheets, and statements of cash flows can all provide insight on the overall corporate health of a business. As with many different industries who perform tests to determine results, understanding business basics through fundamental analysis show analysts the potential risks and rewards of investing.

The data collected through financial statements provide investors the integral numbers needed for analysis. But, we don’t stop with the numbers. In addition to quantitative performance, qualitative performance is important. Annual reports are a fantastic opportunity for business executives to explain their business performance. This can be a wealth of information that can greatly impact your investment return. For example, since businesses invest their money in things like new products, gains and losses can be explained through annual reports.

Performance in Fundamental Stock Analysis

In fundamental analysis, performance has nothing to do with stock price. Instead, company’s advancement towards their goals is assessed. How a company performs in this way is an indication of whether they are marked as investment potential or investment poison. Metrics are the most effective way to measure a company’s performance. Price-to-earnings ratio, earnings per share, and gross margins are all useful tools in determining the overall financial health of the company are analyzing for investment.

Unfortunately, there is no specific set of rules that will make your fundamental Stock analysis 100% fool proof. Therefore, it’s best to use a certified professional financial consultant to give you an opinion on their investment recommendations. Because financial professionals continually benchmark stocks and analyze results, their strong fundamental analysis skills provide the best start to determine successful investment potential.

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