Penny Stock Brokers 4u

How does an investor decide the best stocks in which to invest? There are a variety of methods in which to evaluate investments to increase the odds of success. The three most often applied are as follows:

• Quantitative Analysis – uses ratios and equations to determine if within a desired range
• Technical Analysis – uses historical information to forecast future results
• Fundamental Analysis – a study of the business’s financial attributes

Investors are apt to choose the method that continues to provide acceptable results, although they may incorporate various aspects of more than one of them.

The first step in choosing a method is to understand how they work. Rather than discuss all the options, let’s look at the last one for this article. So, what is fundamental analysis? In a nutshell it is assessing an intrinsic value by means of analyzing the company’s financial statements and other indicators. Then, if the stock price is below this derived value it is undervalued and thus a good buy; if it is above the value then it is overvalued and should be avoided.

Fundamental analysis includes both quantitative and qualitative factors in determining a stock’s value.

• Quantitative factors – those things that can be given a specific numerical value, such as:
  • Dividends paid
  • Earnings per share
  • P/E ratio
  • Cash flows
• Qualitative factors – not measurable in a numerical sense, yet with value just the same such as those that follow:
  • Brand recognition
  • Competitive advantage
  • Effectiveness of management
  • Industry growth
  • Industry regulation

An analysis of a company’s financial statements, namely their Balance Sheet, Income Statement, and Statement of Cash Flows is important when analyzing the financial strength of a company. It is important to review all the reports required by the SEC such as the auditor’s report, notes to financial statements and the MD&A (management discussion & analysis). The investor that educates himself on how to analyze financial statements will be far better informed about the company than someone that does not understand the various indicators to be found on the reports. It is also important to ascertain the condition of the market and industry in which the company operates to try to foresee developments that could affect the future performance of a company. Remember, the pony express companies did marvelously well, until they were made obsolete by more modern transportation options.