Fundamental Analysis

Fundamental analysis is the process of looking at business at the most basic or fundamental financial level. This type of analysis examines the key ratios of a business to determine its financial health. Fundamental analysis also give you an idea of the value of what company stock would be.Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements health and competitors. It also considers the overall state of the economy and factors including interest rates, production, earnings, employment, GDP, manufacturing and management.An economic indicator is a statics about an economic activity. Economic indicators allow analysis of economic performance and predictions of future performance.Inflation is clearly marked by rising prices and falling purchase power. because every money you have worth less than it was before, it suddenly costs more money to buy same things. Inflation when it remains in a manageable 4 to 5% range, is the normal state of the economy. As price increase, wages, products and stock prices tend to follow suit in healthy economy. When inflation sky high such that it greatly exceeds increase in income, the market can't compensate. When buying power declines too much and too fast, people don't buy as much.Deflation is a overall decrease in prices. This sounds like it would be a good thing, but isn't. Typically, deflation is brought on by a whispered reduction in personal or government spending, drying up demand for goods and services. This unfortunate economic state comes with tighter economic policies. As deflation's point spins out of control, it causes a run of unfortunate and self sustaining events such as:* Plummeting corporate profits* Downsizing* Plant closings* Shrinking salaries* Loan defaults* Increased bankruptcies* Decreasing pricesStagflation is sort of like the sleeping of the economy; it's mythic-ally rare and all not economists agree on how or when they appears. During a period of stagflation, the economy sees the worst of both worlds. It's time to characterized by high unemployment, slow economic growth and a declining GDP that occurs at same time as inflation.From terrorist attacks, natural disaster to changing weather patterns technological innovation to shifts in consumers tastes. Some of these factors are temporary, and some are permanent. For example terrorist attacks affect travel and tourism business, which in affect the stock prices of companies in the travel industry.There are three main types of indicators leading, lagging and coincident. Each type offers a different ways to assess the direction of economy, which in turn strongly influences the direction of the stock market.Economic indicators changes before the overall economy changes, offering some insight into what comes next, are called leading indicators. These indicators are not always right, but decades of experience show us that they very often offer reliable predictive information for investors.They follow on the heels of change in the economy or the stock market. Analysts primary use these indicators to confirms that a change taking place. One of the most commonly quoted lagging indicators is the unemployment report, because it's a clear measure of the strength of the economy.Coincident indicators happen right along with the changes in the economy. For example, when economy is strong, people's income increases. Like lagging indicators, coincident indicators help confirm the country's economic health.Consumer confidence index has been pretty accurate predictor of consumer spending. In these index stock market takes notice. Based on survey 10,000 to 15,000 look what average consumers are thinking and felling about the economy right now, which way they think economy will move.A credit rating is an evaluation of the credit risk of a prospective debtor, predicting to ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting.Return on equity is a measure of financial performance calculated by dividing net income by shareholdersIn these types of analysis companies cove anything related to the economic well being of company. They include numbers like revenue and profits, but they include anything from company market share to the quality of its management.The business model what exactly company do? If a company business model to sell mobile phones is it money making way? Or is it coasting on royalties and franchise fees.Company long term success is driven largely by its ability to maintain competitive advantage and keep it.Even the best business model is doomed if the leaders of the company's fail to properly execute the plan. You can look the corporate website and check the top board members.Corporate governance describes the policies an organization relationship and responsibilities management, directors and shareholders.The balance sheet represents a record of a company assets, liabilities and equity at particular point inn time.The income statements presents information about revenues, expenses and profit that was generated as a result of business.The statement off cash flow represents record of a business' cash inflows and outflows over a period of time.Focus on following cash related activities.* CFI (Cash From Investing)* CFF (Cash From Financing)* OCF (Operating Cash Flow)