Quiz 3: Fundamental and Technical Analysis

• Investment Analysis is a series of calculations and assessments in evaluating the feasibility of an investment opportunity. It significantly contributes in making informed decisions on where to allocate one's money.
• Two Primary Types of Investment Analysis:

  1. Fundamental
  2. Technical
• Fundamental Analysis:

  ● financial statements

  ● economic indicators

  ● industry analysis

  Strengths:

  ● long-term perspective

  ● realistic
• Technical Analysis

  ● price patterns

  ● volume analysis

  ● market psychology

  Strengths:

  ● short-term

  ● visual representation

  ● adaptability
• Fundamental Analysis

  ● measures a security's intrinsic value by examining related economic and financial factors.

  ● involves the financial analysis of publicly listed companies in terms of liquidity, solvency, and profitability.

  ● evaluates whether a company becomes more efficient as it gets larger, the success of its new projects or acquired businesses, and many other factors.
• Intrinsic value is the value of an investment based on the issuing company's financial situation and current market and economic conditions.
• SOURCES OF FUNDAMENTAL ANALYSIS

  1. historical data publicly known information about the company
  2. information that is not known publicly but is useful
• TYPES OF FUNDAMENTAL ANALYSIS

  1. Qualitative a. Business Model b. Competitive Advantage c. Management d. Corporate Governance e. Industry
  2. Quantitative a. Financial Statements
• Qualitative – a study that involves brand value, management decisions, the financial performance of the company over a given period, and other similar factors.
• The Business Model – What exactly does the company do? This isn't as straightforward as it seems. If a company's business model is based on selling fast-food chicken, is it making its money that way? Or is it just coasting on royalty and franchise fees?
• Competitive Advantage – A company's long-term success is primarily driven by its ability to maintain a competitive advantage—and keep it.
• Management - Some believe management is the most important criterion for investing in a company because even the best business model is doomed if the company's leaders fail to execute the plan properly.
• Corporate Governance – describes the policies in place within an organization denoting the relationships and responsibilities between management, directors, and stakeholders.
• Industry - Learning how the industry works will give an investor a deeper understanding of a company's financial health.
• Quantitative – an analysis that is purely number-based and considers the company’s financial statements and concludes the share price from the observations.
• Financial Statements – the medium by which a company discloses information concerning its financial performance. Followers of fundamental analysis use quantitative information from financial statements to make investment decisions.
• Economic Analysis

  -Fundamental analysis also involves analyzing broader economic trends and indicators to understand how they might affect a company's performance. This can include factors such as interest rates, inflation, GDP growth, and consumer sentiment.
• Gross Domestic Product - represents the total value of goods and services produced in a country over a specific period. A growing GDP indicates a healthy economy and can positively impact the performance of businesses and, consequently, their stock prices.
• Employment Data - provide insights into the labor market's health. A strong labor market usually translates into higher consumer spending, benefiting businesses and their stock prices.
• Inflation and Interest Rates - higher inflation and interest rates can negatively impact businesses' profitability and investors' willingness to invest
• Consumer Confidence and Spending - measures consumers' optimism about the economy and their financial situation, which influences their spending habits. Higher consumer confidence and spending can boost businesses' revenues and stock prices.
• Industry Analysis - It includes understanding the competitive landscape, growth potential, and industry-specific metrics.
• Porter’s Five Forces of Model – provides a framework for assessing the degree of competition in each sector
• Industry Life Cycle – refers to the stages an industry goes through, from inception to maturity and, eventually, decline.
• Key Industry-Specific Metrics - vital for understanding the performance and financial health of companies operating within a specific industry
• Company Analysis After examining the industry, it's crucial to analyze individual companies to determine their financial health, competitive advantages, and growth prospects.
• Financial Statement Analysis – investors can assess a company's financial health and performance by analyzing its financial statements