Stock market analysis

Stock market analysis is a method by which investors and traders decide on buying and selling by studying and analyzing historical data and current data. It allows investors to understand the security that a stock can provide before investing in it. There are stock analysts who conduct in-depth research to know every activity in every sector of the stock market.

Type of Stock Analysis:-

1. Technical Analysis.

2. Fundamental Analysis.

3. Sentimental Analysis.

​Fundamental Analysis:-

Fundamental analysis (FA) is a method of measuring the intrinsic value of a security by examining relevant economic and financial factors. Fundamental analysts study everything that affects the value of a security, from macroeconomic factors such as economic status and industrial conditions to microeconomic factors such as corporate governance efficiency.

The ultimate goal is to arrive at a number that the investor can compare with the security at its current price to determine if the security is undervalued or overvalued.

This method of inventory analysis is considered to be the opposite of technical analysis, which predicts the direction of prices by analyzing historical market data such as price and quantity.

Each stock analysis seeks to determine whether a security is well valued in the wider market. Basic analysis is usually done from a macro to micro perspective to identify securities that are not selling well.

Types of Fundamental analysis 

1. Quantitative  

2. Qualitative

Qualitative Fundamental Analysis

There are four key criteria that analysts should always consider when it comes to a company. Everything is qualitative rather than quantitative. They contain:

• Business model: what exactly does a company do? It's not as easy as it seems. If the company's business model is based on the sale of fast food poultry, is it profitable? Or does it just reduce licensing fees and franchise costs?

• Competitive advantage: The company's long-term success is largely driven by its ability to maintain a competitive advantage - and to maintain it. Strong competitive advantages, such as the Coca-Cola brand and Microsoft's dominance in the PC operating system, create a channel around the company that allows competitors to perform and enjoy growth and profits. . If a company achieves a competitive advantage, its shareholders can be well rewarded for decades.

• Management: Some believe that management is the most important measure for investing in a business. Reasonable: Even the best business model can be ruined if business leaders do not execute the plan properly. Although it is difficult for retail investors to meet and actually evaluate managers, you can view the company's website and check the CVs of major buyers and board members. How well did they do in the first few contracts? Have they bought many of their shares recently?

• Corporate Governance: Corporate Governance describes the principles established within the organization that define the relationships and responsibilities between management, directors and stakeholders. This policy is defined and defined in the company's charter and its rules, together with the company's laws and regulations. You want to do business with a company that is ethical, honest, transparent and efficient. In particular, note whether the management respects the rights and interests of shareholders. Ensure that their communication with shareholders is transparent, clear and comprehensible. If you can't get it, it's probably because they don't like you.

​Qualitative fundamental Analysis

Financial statements are a means by which a company discloses information about its financial performance. Proponents of fundamental analysis use quantitative information gathered from financial statements to make investment decisions. The three most important financial statements are profit and loss statements, balance sheets and cash flow statements.

Balance

The balance sheet represents a record of the company's assets, liabilities and equity at a given point in time. The balance sheet is mentioned by the fact that the financial structure of the company is balanced as follows:

Assets = liabilities + assets of shareholders

Assets represent resources that the company owns or controls at some point. This includes things like money, inventory, machinery and buildings. The other side of the equation represents the total amount of financing that the company used to acquire the assets. Financing is the result of liabilities or equity. Liabilities represent liabilities (which, of course, must be repaid), while equity represents the total amount of money invested by business owners - including retained earnings, ie income received in the past. flight.

Profit and loss statement

While the balance sheet requires a snapshot method for evaluating a company, the income statement measures a company's performance over a period of time. Technically, you can have a balance for a month or even a day, but public companies will only report quarterly and annually.

The income statement contains information on revenues, costs and profits generated as a result of business operations for the period.

Cash flow statement

The cash flow statement represents a record of inflows and outflows of corporate cash over a period of time. The cash flow statement usually focuses on the following cash-related activities:

Cash on Investment (CFI): Cash used to invest in assets, such as proceeds from the sale of other companies, equipment or fixed assets

Cash from financing (CFF): Cash paid out or received from the issue and borrowing of funds

Operating cash flow (OCF): Cash generated from the company's day-to-day operations

The cash flow statement is important because it is very difficult for a company to manipulate its financial situation. Aggressive accountants can handle revenue a lot, but counterfeiting bank money is difficult. For this reason, some investors use the cash flow statement as a more conservative measure of a company's performance.

Note:- Technical Analysis in the next Blog