Fundamental Analysis: Conclusion
By Ben McClure
Whenever you're thinking of investing in a company it is vital that you understand what it does, its market and the industry in which it operates. You should never blindly invest in a company.
One of the most important areas for any investor to look at when researching a company is the financial statements. It is essential to understand the purpose of each part of these statements and how to interpret them.
Let's recap what we've learned:
- Financial reports are required by law and are published both quarterly and annually.
- Management discussion and analysis (MD&A) gives investors a better understanding of what the company does and usually points out some key areas where it performed well.
- Audited financial reports have much more credibility than unaudited ones.
- The balance sheet lists the assets, liabilities and shareholders' equity.
- For all balance sheets: Assets = Liabilities + Shareholders' Equity. The two sides must always equal each other (or balance each other).
- The income statement includes figures such as revenue, expenses, earnings and earnings per share.
- For a company, the top line is revenue while the bottom line is net income.
- The income statement takes into account some non-cash items, such as depreciation.
- The cash flow statement strips away all non-cash items and tells you how much actual money the company generated.
- The cash flow statement is divided into three parts: cash from operations, financing and investing.
- Always read the notes to the financial statements. They provide more in-depth information on a wide range of figures reported in the three financial statements.
The excess of the market value of an asset over its book value. ...
A process that establishes an estimate of the value of a failed ...
A valuation methodology used to calculate the present value of ...
The portion of a company's profit allocated to each outstanding ...
A performance measure used to evaluate the efficiency of an investment ...
An announcement by an investor who holds a security that he or ...
Found out what the efficient market hypothesis says about the fair value of securities, and learn why technical and fundamental ...
Read about the most common and important methods of evaluating the stocks of utility companies, and learn why regulation ...
Learn how hedge funds use short selling to profit from stocks that are falling in price. Explore different analytical techniques ...
Learn about the risk of small cap companies compared to large cap companies. Compare the volatility of both and learn how ...