Fundamental Analysis
Fundamental Analysis looks at a company’s financial health and how it operates by checking its financial reports, statements, and ratios. Comparing these ratios with those of other companies helps investors understand more. For anyone investing in stocks, looking into the fundamental analysis helps find out the real worth of the stock (Intrinsic value). The best chance to make money from a stock is by buying it at its true value or for less than that.
Common Fundamental ratios:
Price-to-earnings ratio (P/E) determines the company’s value by dividing the price of a share by earning of the share(Company’s profit to each share).
Debt-to-Equity Ratio (D/E) measures how much a company has taken a debt relative to its actual assets and liabilities.
Return on Equity Ratio(ROE) measures the company’s profit based on net income divided by its shareholder’s equity.
Technical Anslysis
Technical Analysis is all about looking at a stock’s past market data, including its current price and trading volumes, to predict future price of the stock. It’s quite different from fundamental analysis because it mainly focuses on tracking the movement of stock prices and trading volumes over time using charts. To do this, various tools and indicators are used to help predict future price changes in these charts.
There are two different ways to approach technical analysis:
Top-Down Approach is a macroeconomic analysis where the trader first looks at the global or country level economics and narrows down to a particular sector.
Bottom-Up Approach on the other hand, begins with focusing on details of a single stock and on the company’s financial details, like its P/E (Price to Earnings) and D/E (Debt to Equity) ratios, before looking at anything else.
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