The Power of Fundamental Stock Analysis Part One

If you are considering stock market investment you'll definitely want to take a closer look at Fundamental Analysis. As a stock investor there are many tools available to help you decide which stock you're going to buy, in today's computer age technical analysis has become more popular but it will pay you not to overlook the more well-established system known as Fundamental Analysis. Fundamental analysis, that is to say examining what are known as the key ratios of the stock provide a method of quickly showing how much the stock is worth and how well the company is performing compared to other companies in the same sector.

The objective of fundamental analysis is to help you understand how much money the company you are considering investing in is making and how those earnings are expected to change in the future. Like all things company earnings are always subject to speculation, if the company has a good earnings record this will help to give investors confidence in the stock because they will expect the stock price and the companies dividends to rise as the earnings rise.

All listed companies must report their earnings on a regular basis, these reports are subject to detailed analysis and if the figures do not meet the market's expectations there are bound to be a downturn in the company's stock price.

Fundamental analysis relies on a detailed examination of the companies financial statements. Every company that is traded on the stock market must publish these financial statements regularly, in the past it was normal to produce these as just printed reports but today they are also readily available on the Internet via the company's website and as such are easily accessible to anybody who is considering investment in the company's stock. All financial statements include a least the following items, an income statement, the company balance sheet, the external auditors report, cash flow statement, a description of the company's business activities and the expectation of earnings for the next financial year.

Before we cover the actual key ratios lets consider the individual parts of a typical company financial statement.

Perhaps the most important part of the financial statement is the external auditors report. The company's auditor is always an independent certified public accountancy firm which is required to examine the company's financial reports to establish if the information provided in the financial statement is a true and accurate description of the company's earnings. The Independent auditors report expresses the auditors opinion of the accuracy of the information in the financial statement, any financial statement that does not have an independent auditor's report is worthless because obviously it could contain misleading information which could result in a bad investment decision. It must be remembered that an independent auditor's report is not an absolute guarantee of the accuracy of that report but without it the financial statement has no credibility at all.

The company balance sheet is also an important source of information for fundamental analysis, the balance sheet is actually a snapshot of the company's financial affairs at a given point in time. The balance sheet will allow you to see the interrelationship between the company's assets that is to say property and equipment inventory and cash against its liabilities and the retained equity in the company.

The company's income statement will show information about income generated by the company's activities and the costs which were incurred in generating that income this will allow you to establish the earnings per share on both the gross and net basis.

And finally we come to the statement of cash flow this is rather like the income statement but it gives a more detailed picture of how the money flows into or out of the company over the financial year. The income statement shows money coming in from sales, stockstackup.com" title="investments">investments in the company, or borrowing and how the company handles its expenses. It is a very valuable indication of how the company is managed on a day-to-day basis.

In part two of this article I will go into greater detail about key financial ratios that are use in fundamental analysis and how they can help you in arriving at stock investment decisions.

For more vital information about Fundamental Analysis visit http://www.stockinvestingforbeginner.com/

Tags : Stock Trading Systems Antworks Ant Farm Reviews

How the Z-Score Can Help Your Investment Returns

I recently came across an interesting article in the Financial Times called New study re-writes the A-Z of value investing based on thought provoking research from the investment bank Morgan Stanley.

They found that when buying undervalued companies based on valuation measures such as price to book value ("PB") and price to earnings ("PE") ratios, in economic downturns, returns are very dependent on the balance sheet financial strength of the company.

This makes intuitive sense and has been especially important in the current downturn because of the associated banking crisis.

Morgan Stanley used a measurement of financial strength called the Altman Z-score ("Z-score"). Which was developed in 1968 by Edward I. Altman, an Assistant Professor of Finance at New York University.

The Z-score is a combination of five weighted business ratios and can also be used to predict bankruptcy.

In a series of tests covering three different time periods over 31 years (up until 1999), the model was found to be 80-90% accurate in predicting bankruptcy one year prior to the event, with a error rate of 15-20%.

The z-score is calculated as follows:

Z-score = 1.2T1 + 1.4T2 + 3.3T3 +.6T4 +.999T5.

T1 = Working Capital / Total Assets.

T2 = Retained Earnings / Total Assets.

T3 = Earnings Before Interest and Taxes / Total Assets.

T4 = Market Value of Equity / Book Value of Total Liabilities.

T5 = Sales/ Total Assets.

And is interpreted as follows:

Z-score > 2.99 = Safe

1.8 < Z-score < 2.99 = Middle or grey

Z-score < 1.80 = Distress

Source:Wikipedia

Morgan Stanley ranked a basket of companies by their Z-scores and found that when they compared Z-scores with share price movements, companies with weaker balance sheets underperformed the market more than two thirds of the time.

They also found that a company with a Z-score of less than 1 tends to underperform the wider market by more than 4% over the year with a probability of 72%.

''Given the poor performance over the last year by stocks with a low Altman Z-score, the results of our back-test are now even more compelling than they were 12 months ago," argues Secker. "We calculate that the median stock with an Altman Z-score of 1 or less has underperformed the wider market by 5-6% per annum between 1990 and 2008."

When compound annual returns since 1991 were analysed, the results are more dramatic. On average, companies with Z-scores of less than 1 saw their shares fall 4.4 per cent, compared with an average rise of 1.3 per cent for their peers.

Only five of the 18 years did companies with a Z-score of 1 or less outperform the market in and this took place only in years with strong economic growth.

The study can be summarised as follows:

Unless you have a really compelling reason to buy, avoid companies with a Z-score of less than one like the plague.

I use the Z-score in my company analysis as an early warning signal. Should the Z-score be less that 3 I investigate further. However because I am relatively debt averse I seldom find reason to have to do so.

Tim du Toit is editor and founder of Eurosharelab. On his website he reveals what more than 20 years of equity investment have taught him - sometimes at considerable cost.

To discover how you can avoid costly mistakes and enjoy greater profits, sign up for his free newsletter at http://www.eurosharelab.com

Tags : Day Trade Alerts Home Remedies For Excessive Sweating Digital Desk Alarm Clocks Review Stock Analysis Software

Yesterday's News

Wall Street and the stock market.

I'm no expert when it comes to the stock market that's for sure, so don't be looking to me for advice. But I must say, I sort of like what is happening right now... Why? Well I figure (and this is just a gut reaction) that a real bad 2008 in all sectors should shake out most of the negative sentiment in marketplaces - there by conditioning us for other bad news. So the next time we have a totally new development in the marketplace, it sort of rolls off our backs rather than sticking like tar. For example I remember when the first reports of "The Bubble" in the real estate market first appeared. It was sort of a shock to the system - kind of a, uh oh. But now with the bad news coming like the wind - seems like every week there's a new group or economist spouting off about this or that, I just shake my head and go about my business...sort of "so what's new."

I am not going to get effusive here about a rebound just yet, but I will predict it won't get as bad "they" say and before you know it, homes will be appreciating again (2009) and negative equity will be a forgotten term. The rebound is going to be closely tied to many indicators. None though more important, in my opinion than resale inventory. When we get to a 5 month supply or maybe a bit less, the rebound is in full swing. That means interest rates are low, buyers feel optimist and the economy is good enough for them to retain their jobs.

The wild card they say is the potential for more inventory to hit the streets in way of foreclosures. If they do hit with high numbers, its going to be a cold winter and hot summer.

So the next time you think yesterday was bad, just hold on there is probably room for good and bad news. Least thats my take on the subject.

Mark Tait is a licensed REALTOR in Arizona. Visit him at http://www.marktait.com

My Links : Make Money Option Trading Best Small Cap Stock Forex Platform Wall Street Market Hours Training For Dogs

Stock Analysis - Technical vs. Fundamental

There are two different methods most stock traders employ to analyze a stock as a potential investment and each is a different from the other as night and day. In fact, the subject has caused more than one healthy debate between successful traders and investors and will likely continue do so for quite some time. Fundamental vs. technical analysis, which is the best way to trade? First, I have to admit I am a devout technical analyst. I write about the subject and own a company who publishes a technical analysis stock stockstackup.com" title="Trading Course">Trading Course. I didn't start out in the stock market that way but gradually came to the conclusion I understood technical criteria better than fundamental criteria. Even though I believe that technical analysis leads to more profit, less loss, and is easier to understand, I do leave room for possibility that there are investors who perform just as well as I do using fundamental analysis.

Fundamental analysis is the study of the financial condition of a publicly traded company. When you visit a financial website such as MSN Money, Yahoo Finance or CBS Market Watch and enter a stock symbol, the information that will be displayed is mostly fundamental criteria. It includes figures such as gross sales, gross profit, sales growth, income growth, net profit margin, debt to equity ratio, institutional analyst recommendations among other various criteria. The fundamental analyst compares these numbers to those of other companies in the same industry group of against the S&P 500 average and decides if the stock is worthy of being added to his of her portfolio.

Many fundamental analysts are buy and hold investors. They're willing to add a stock to their portfolio and wait until the investment matures, which is different than most technical analysts. Fundamental analysts by nature are patient with their investing approach. They may hold an individual stock for years, allowing it time to gain a return (hopefully) and in some cases reap the dividends the stock may or may not pay.

Technical analysts decide which stock they will invest in based on criteria they see on a stock chart. The technical analyst believes that the stock chart also charts the mood of the specific market. To put it another way, the stock chart gives the investor a peek into the market psychology. While large financial institutions and brokerage houses recommend stocks to their customers based on fundamental criteria, they all have traders on the floor who honor technical criteria on a daily trading basis. You can actually watch technical rules being "obeyed" on an intraday chart as the price forms patterns indicating the stock is losing steam or there is strong buying taking place. These intraday patterns are traded by stockstackup.com" title="day trader">day traders but the same rules apply to daily charts and allow the technical analyst the ability to read market psychology in charts of many time frames.

The technical analyst uses the daily chart to forecast his or her trades. The different continuation, topping, bottoming and reversal patterns are to numerous to list in this article. Most technical traders buy on a price breakout and sell on the first pullback or consolidation in price. The breakout is forecast on the chart and the entry is strategically timed to a precise buy point. It takes some study and training but the rewards are great and quick.

The technical analyst is usually impatient and not willing to keep their money tied up in a stock for very long. Most usually hold for less than a couple of months, with a couple of weeks being more common. The trade is placed only to "ride the wave" and the position is exited once the wave is over.

If you haven't begun to trade stocks and are thinking about starting, you need to decide which way YOU feel comfortable analyzing and trading stocks. It's a personal decision based on what you feel comfortable with. Technical traders are usually a little more aggressive in their approach to trading stocks than their fundamental counterparts. Either way is ok as long as you are willing to put the time into studying your craft.

B.M. Davis is an active trader and publisher of the Market Master Stock Trading Course. If you would like more information about candlestick charting or stock trading please visit http://www.market-masters.com

My Links : Day Trade Today Make Money Buying Stocks Gardenella Bacteria

Trend Following in the Stock Market

Trend is the general direction of the price in the stock market. Trend is determined by comparing the price and the average volume of trade in the market. The price and volume have a close relation in determining the trend in the market. There are predominant two different trends that are seen in the stock market - the bullish trend and the bearish trend. Then there are some intermediate trends that also exist in the share market. When there are more buyers in the market and the overall market condition is on the higher side, it is the bullish trend. On the other hand, when there are more numbers of sellers in the market, and the buyers' confidence is low, the market is said to be in a bearish side. These two are the most common trend in the market and the price index and volume of trading are the two most crucial parameters for deciding the overall market trend.

As an investor you can effectively gain from following the trend in the market. In fact there is a group of investors who do the trend trading, i.e. buy and sell the stock by trend following in the stock market. This technique is better way of investing in stock market if your objective is to wealth building from stock market. If you are trading in stocks for income then the trend trading is not really a good option for you. There are so many benefits of doing trend trading and they are as follows,

Trend trading is the easiest and safest way of investing in the stocks. All you need to do is identify the trend and make your investments and then close the deal when the trend begins to reverse. That means when the market is bearish and prices of the stocks are falling on a daily basis, select a few stocks that are fundamentally in good position and invest in them. Wait for the trend to reverse and whenever the market is rising and hits the highest level, sell off those stocks and get the profit. To do that successfully you need to have a good research and technical analysis of the stocks. That will help you to determine the entry and exit point of the stocks that is very much important for trading according to the market trend. The technical analysis and fundamental study of the stock together will help you to identify the Undervalued Stocks in the bearish market as that will most likely give you maximum return when the market trend reverses.

But following the trend in the stock market is only profitable when you are investing in the stock market for long term. To get the benefit from the trend reversals, you have to wait for the right opportunity and if you can do that you can expect to get benefited from 60% to 80% of the intermediate price change. So, keep an eye on the market trend, identify the right stocks and invest in those stocks for sure profit.

Open an account with Sogotrade

If you are new to Sogotrade: Online stock trading investment

Visit : Stock Market Charts Blueprints For A Shed

Are There Any Good Penny Stocks?

Penny stocks are better known as small cap stocks. These are stocks which are sold at a price which is less than a greenback per share. These penny stocks are typically not listed in the major stock exchanges. They are traded over the counter. Often you can trade small cap stocks on the pink sheet. In spite of its dodgy nature, they are far more prevalent among the backers. Large investment isn't needed to start trading with those speculative investments. But most of the times, believe it or not, tiny investment in this risky vehicles will bring in devastating losses.

The majority of the time new investors bear in their mind that "those hot stock picks" will certainly bring in a large amount of money. This is a misconception among folk attempting to hit the lottery ticket in one investing solution. To earn money in the stock market you must invest in the right sort of stocks and also know how it all works. This naturally is a hard process. The majority of the stock holders are no longer aware as to which are the good growth stocks that may be invested. There are certain tools and correct system to be followed to profit from the stock market.

If you don't have access to these investing tools you needn't worry. I'm going to tell you about some of the tools thru this article. Step 1 for you when you go in for investing in securities is to employ a determined penny stocks preference system, which shows the best stock picks and also show the ones to be evaded. You may seek the support of a certified stock broker, info available in growth stock newsletter and naturally your own discretion. Except for this you'll have to do a particularly careful and good market research work about the expansion stock companies in which you need to invest.

You'll have to give in hours of stock research, payments to good, plausible finance stories sites and a calculator to reveal a profitable penny stock. And believe me if you do find them then remember that your money and time isn't worthwhile. In addition, you as a stockholder be conscious of all potential risks mixed up in the investment of small cap stocks. The financial steadiness of the company, fine quality trading quantity, and well-built business plans are also some of the factors which you can consider for growth stock picks.

It is left to the speculators to recognize as to a way to make a response to it and compose it to work for us. Really, now isn't the time to invest your savings in penny stocks. You can invest in stocks now for a cost, which is less than half the cost of their tangible price, and find great growth stocks. The sole cause for such a slump in the stock market is actually because the confidence of stockholders is also decreasing in the market.

Best Growth Stock Market Report provides you with the best stock picks and stock market analysis.

Tags : Day Trading Stocks To Buy Best Trading Platform For Day Traders Stock Trading Software Woodworking Do It Yourself