Stock analysis is the evaluation of a particular trading instrument, an investment sector, or the market as a whole. Stock analysts attempt to determine the future activity of an instrument, sector, or market.
Understanding Stock Analysis
Stock analysis is a method for investors and traders to make buying and selling decisions. By studying and evaluating past and current data, investors and traders attempt to gain an edge in the markets by making informed decisions.
Fundamental Analysis
There are two basic types of stock analysis: fundamental analysis and technical analysis. Fundamental analysis concentrates on data from sources, including financial records, economic reports, company assets, and market share. To conduct fundamental analysis on a public company or sector, investors and analysts typically analyze the metrics on a company’s financial statements – balance sheet, income statement, cash flow statement, and footnotes. These statements are released to the public in the form of a 10-Q or 10-K report through the database system, EDGAR, which is administered by the U.S. Securities and Exchange Commission (SEC). Also, the earnings report released by a company during its quarterly earnings press release is analyzed by investors who look to ascertain how much in revenue, expenses, and profits a company made.
When running stock analysis on a company’s financial statements, an analyst will usually be checking for the measure of a company’s profitability, liquidity, solvency, efficiency, growth trajectory, and leverage. Different ratios can be used to determine how healthy a company is. For example, the current ratio and quick ratio are used to estimate whether a company will be able to pay its short-term liabilities with its available current assets. The formula for current ratio is calculated by dividing current assets by current liabilities, figures that can be gotten from the balance sheet. Although, there is no such thing as an ideal current ratio,
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