Financial Analysis

These thoughts are centered on financial analysis and the creation of value for a commercial or industrial enterprise. Financial analysis is a method of analyzing the financial health of a company based on accounting documents, schedules, forecasts and intangibles such as a factory visit or experience managers. The objective of financial analysis is to answer two questions that may vary depending on where we place ourselves.

Shareholders: Does the company within the scope of my investment strategy?

Creditors: If I lend money, will I get it?

Attention, everyone can be an investor or creditor! Buy shares makes you a shareholder, subscribe to bonds makes you creditor. However, you have to analyze the company whoever you may be! I strongly emphasize this point, since the financial environment changes over time, the safe products become risky and that deserve analysis. Even in times of euphoria, a financial analysis is essential because even the best company’s of euphoria can fail. From my point of view, what I could see between schools, banks, investors and entrepreneurs, financial analysis is often incomplete. It is not enough to look at whether a company has been profitable for the last 3 years by adding liquidity ratios, management, structure, or even credit for a complete analysis.

 When a company makes a profit, we must always ask ourselves whether these profits can be converted into cash. It is only with cash that a company can repay its debt or pay its shareholders. Analysis of cash flow or cash flow-often forgotten-is an essential step in any financial analysis. A company may have an increase in its constant activity, an important benefit but have a severe shortage of cash. Most of the Americans investors know this and have invented one worship saying: Cash is king. While many start ups rely on equity funds that imply they lack the cash to finance their activity despite growth rates maddening.

Stock Trading Tools

Before venture into share trading you have to know the basics of technical analysis. There three basics in technical analysis. The first and for most one is Japanese candlesticks. The graph of the stock price gives us some information. It rises and falls in a zigzag manner. The main advantage of Japanese candle sticks is, it provide us a direct reading about the psychology of the traders. This can decrypt the price movement over a given unit of time and can infer, in which side the market is in favor of? i.e. in favor of buyer or the seller. To construct a candle stick we have to connect the opening price at the closing of a trading secession usually daily. What we call this as true body if the market is bullish the graph is white and if the trend is bearish the candle will be black. From the color variation we can distinguish whether the market is increasing or decreasing. The extremes of the market session are represented by the thin lines called shadows. Form the different forms of the candlestick we can judge the market trend.

 What is interesting is the combination of Japanese candlesticks. For example, assume three Japanese candlesticks in succession, therefore the ‘real body’ is becoming smaller and the shadow is longer and longer. This implies the buyers are losing hand to the sellers and the reversal is going to happen naturally.

 Apart from this, for a better trading we need to know the market namely, the areas on which course many buyers appear and where the sellers offload. The support level is the price level which is horizontal where by the market is sufficiently attractive to the current buyer develops.

Resistance is opposite of the support level of prices where the selling price mounts which leads to the decline in the price. The support and a parallel resistor forms a channel, that is why we say buy at support and sell at resistance. A support and a parallel resistor form a channel. It is for this reason that they say you have to buy support and sell resistance.

 Other one we should know in the stock market reading is Moving averages. A simple moving average is an arithmetic average of the last x periods. For example a fifty days moving average is equal to the arithmetic average of the last fifties taken daily. It is called moving because in each period the new one replaces the course of the old one and this process continues. When the price breaks to increase the level of the moving average we can say the short term trend is reversing towards the trend is increasing in the medium term. This trend is favorable to the buyer. Conversely, when the price breaks down the level of the moving average, we say the short term trend is reversing towards the trend towards lower medium term which is favorable to the seller.