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There are two ways to analyze the performance of an asset. Technical analysis uses indicators in an attempt to make a prediction on future performance based on the past movement and volume of the asset. This type of analysis is often combined with fundamental analysis.

Fundamental analysis is a method that measures the intrinsic value of a security by examining relevant economic and financial factors. Fundamental analysts look at anything that can potentially affect a security’s value, from macroeconomic factors such as the state of the economy and industry to microeconomic factors such as the efficiency of business management. The objective of this valuation is to estimate a value that traders can then compare to the current price of the asset and understand whether the asset is overvalued or undervalued.

Although it sounds simple, it is often difficult to understand the factors that must be evaluated in order to form an objective opinion of the security’s value.

Quantitative and qualitative

All economic factors can be divided into two categories. Quantitative fundamentals refer to anything that can be presented in concrete numbers, these are the measurable characteristics of the company or sector. Qualitative characteristics focus more on the quality of the company’s technology, brand recognition, key leaders and other characteristics, perhaps less obvious, but important.

Let’s take a look at the essential factors that you should consider when looking at the stock market.

How to analyze the actions?

By using a company’s balance sheet, income statement, and cash flow statement, investors can get a sense of the value of stocks. Fundamental analysts use equity analysis data to understand a company’s position relative to its industry, economy, and competition.

While some factors can be considered “more important”, such as the company’s profits, in reality operators need to assess the company as a whole in order to make an informed decision. Both qualitative and quantitative factors can change the situation and have an impact on stock performance.

Some key qualitative factors that can be taken into account when buying or selling stocks, as well as when trading CFDs on stocks are, for example:

  • The business model of the company. What is the company specialized in? What makes him win or lose money? Understanding the position of the company in the market is essential in order to assess its prospects.
  • Competition. Does the company have a competitive advantage? Is it unique in the service it provides? There are companies that undoubtedly dominate the industry and when the company can keep its competitors at bay, it allows it and its shareholders to enjoy long-term growth and profits. When evaluating the company at this point, try to be impartial, not giving the edge to companies you personally prefer, for example.
  • The management and management style of the company. Strong leadership is extremely important to any business, and a change in leadership could drastically influence its performance, for good or bad.
  • Industry. Take a step back and assess the industry in which the company operates as a whole. Is this an industry with potential? How could it evolve over the coming year? Whether it is a large or a small company, it is its position in the sector that influences the most.
  • Some important fundamental quantitative factors are expressed in the following ratios:

  • EPS (earnings per share). This figure shows the company’s profit divided by the number of shares. The higher the EPS, the more profitable the business.
  • EPS ratio. This key valuation ratio compares EPS to the current value of the stock. If the EPS ratio is high, it may indicate that the stock is overvalued, while a low EPS ratio may indicate that the company is undervalued or that it is a poor investment.
  • CPB (price growth relative to profits). It is calculated by dividing the company’s price-to-earnings ratio by the annual growth rate of earnings per share. This ratio is used to assess the performance of the business over time.
  • ROA (return on assets). ROA is calculated by dividing a company’s total income by total assets and it shows how efficiently the company turns assets into income.
  • ROE (return on equity). This ratio measures the company’s ability to return income to shareholders.
  • How to find this information?

    Most of the quantitative information concerning the performance of the stock is already presented in the trading room, in the “Info” tab of each asset. To find the company’s profit reports, management structure information and other details, it is always best to visit its official website. Company social media can also be helpful – it can give you an idea of ​​the company’s customer focus and reveal additional details about its products and services.


    Depending on how carefully you want to be, there are many more factors to consider when evaluating stocks. However, these basic fundamentals are enough to get the big picture, in order to choose the ones that perform well and that fit into your trading strategy.

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    Source: IQOption blog (blog.iqoption.com) 2021-02-19 09:09:19
    Article has been translated for informational and promotional purposes. Translations may not be correct and may contain errors we are not responsible for. Please note this article has been translated by using artificial intelligence. If you are having problems to understand article please refer to original article from IQOption blog.