Hello World! Welcome Friends! Knowing about a company and its finances can help you make informed investment decisions. Put simply, the better you know a company, the better an investor you’ll become.
So, for example, if you know about a company, its dividends, and its plans, you won’t worry so much about a low initial stock price because you know there is a projected growth and projected increased earnings for the future.
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What Is Stock Market Analysis?
The stock market analysis helps investors see the worth of stocks before they invest in them. Every smart investor does extensive research first. Even top investors do their research. Most stock market tips you find online are made after researching the stock thoroughly. Stock analysts try to find out what moves a company and how it will perform in the future based on projects and actions it takes now. Thorough analysis helps investors make good buying and selling decisions.
Why Is It Important for You to Analyze Your Investments?
Researching your investments helps you make knowledge-based versus gut-based assumptions on the future value of a certain stock. For example, investors don’t simply invest in ATT stock because there is a T dividend for each share owned. No, people invest in ATT because they believe in its potential growth and the new projects the company is pursuing to grow the business.
Investors come to a decision, not because of a sole factor, but because they do research.
You don’t generally buy a car, a home, or a phone, based purely on its attractiveness or the price. At least you shouldn’t. Instead, you want to research its overall value before you make a purchase. The same is true of company stock. To help determine this value, investors use one of two types of research: fundamental and technical.
What Is Fundamental Research?
This research is where an investor looks for the value of a stock share using the company’s financial statements, reports, and news about the company. The investor analyzes the different aspects of the company, including management, finances, competition, and then decides on whether the business is valued enough for you to put your hard-earned money into it.
At this point, you take the stance that the true market price does not reflect its real value and that the current value is due to uncontrollable factors like investor fickleness. Based on research, you might believe the stock will gain stability in the long run.
Financial ratios are the foundation of fundamental research, and they include:
Return on Equity – shows whether the company financials are stable and the operations are productive. The ideal ROE is high and continually increases.
Debt Equity Ratio – Information that shows the number of assets used in proportion to the company’s financial assets. It is an indicator of the number of funds offered by the owners compared to the debt owed by the company.
Debt Equity Ration – refers to the total debt compared to the total equity of a company. Investors look for companies that have a lower debt percentage. They compare the D/E to past performance levels from past financial reports.
Earning Per Share
Investors also look at earnings per share or dividends at this point. Some companies offer larger rewards than others and should increase over time. Investors can check the EPS and compare it to that of the dividends provided in the past by the same company.
Technical Research
This research refers to past stock prices and using this information to predict future stock prices. It shows the company’s direction, and it can help you determine if there will be a sharp rise or fall in share price.
Investors use charts to examine movements and determine short and long-term activities which could increase investment price.
The Bottom Line
Investors looking for long-term investments are more likely to use fundamental analysis, while those that are investing short-term tend to review technical analysis. However, many investors who may be a combination of both use the analysis of both types of research to make their final decision and evaluate the true stability of a company.
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Toodles,
Such top quality information. Appreciate the efforts and consistency in quality.