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Fundamental analysis (General factors to consider when analysing a company…
Fundamental analysis
General factors to consider when analysing a company and its shares (MR CHIMP)
Management ability
Retained profits
Competition
(recent) History
Input costs
(prospects for) Market growth
(quality of) Products
Quantitative factors to consider when analysing company and its shares
financial accounts and accounting ratios
dividend and earnings cover
profit variability and growth
level of borrowing
level of liquidity
growth in asset values
comparative figures for other similar companies
Canons of lending (CASPAR)
Character and ability of the borrower
Amount of the loan
Security of the loan
Purpose of the loan
Ability to repay
risk vs reward
reasons for seeking finance
organic growth
acquisition
investment in associated company
capital expenditure e.g. new factory or office
financing dividend
financing share buy-back
ways of determining whether share appears cheap or dear
value using discounted dividend model vs actual share price
value for share obtained using price earnings ratios vs actual price
compare some fundamental factor (such as anticipated earnings) with market's consensus estimate. If analyst's estimate better/worse than market's than share might be cheap/dear
stages
1.) construction of model of company which allows future cashflows and earnings to be estimated
2.) Use of output to determine whether company's securities are over or under valued by the market
Sources of information about a company
Internal
Report and accounts
balance sheet
statement of profit or loss
cashflow statement
notes to the accounts
Chairman's Report
press releases
company visits
discussions with company management
info provided to exchange where listed
statutory info provided to regulator
External
financial press
trade press
discussions with competitors
stockbrokers' publications
credit ratings
study of economic and financial factors affecting a company's share price
can be applied at an industry and economy level as well as at level of individual company