Chapter fourteen financial analysis of common stocks financial analysis


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14-FinancialAnalysis

TECHNICAL ANAYSIS

  • 2. Moving Average and Trading Range Breakout Strategies
    • MOVING AVERAGE STRATEGY:
      • calculate a moving average over the last 200 days of closing prices
      • divide today’s closing price into the moving average (SHORT-TO-LONG RATIO)
      • if short-to-long ratio is greater than 1, buy
      • if ratio is less than 1, sell

TECHNICAL ANAYSIS

  • 2. Moving Average and Trading Range Breakout Strategies
    • TRADING RANGE BREAKOUT STRATEGY:
      • high and low prices for past 200 trading days are identified
      • if today’s close is greater than the high = buy!
      • if today’s close is less than the low = sell!

FUNDAMENTAL ANALYSIS

  • TOP-DOWN V. BOTTOM UP
    • TOP-DOWN APPROACH
      • attempts to forecast in the following order
      • 1. economic activity
      • 2. industry performance
      • 3. firm’s performance

FUNDAMENTAL ANALYSIS

  • TOP-DOWN V. BOTTOM UP
    • BOTTOM-UP APPROACH:
      • attempts to estimate prospects in the following order:
        • 1. The firm
        • 2. The Industry
        • 3. The economy

FUNDAMENTAL ANALYSIS

  • FINANCIAL STATMENT ANALYSIS
    • INTEGRAL PART OF FUNDAMENTAL ANALYSIS
      • it helps the analyst understand a firm’s current condition
      • where it is headed
      • what factors affect it
      • how the factors affect it

FUNDAMENTAL ANALYSIS

  • FINANCIAL STATMENT ANALYSIS
    • Review of Accounting Statements
      • includes a study of the three major statements prepared monthly by most accountants:
        • the balance sheet
        • the income statement
        • the statment of cash flows

FUNDAMENTAL ANALYSIS

  • FINANCIAL STATMENT ANALYSIS
    • RATIO ANALYSIS
      • DEFINITION: a technique used to examine a company’s financial statements
      • Use of Ratios
        • as an absolute standard
        • as a comparative indicator
        • as a trend over time
        • in combination with technical analysis

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