The fundamental type of research consists from specific combination of methods for predicting of market and fair values of the company, as well as cost of entity’s shares and is performed by deep analysis of a combination of internal and external factors. This includes evaluating of internal and external factors such as situation in political, economic and financial spheres in operating environment. As a rule, positive news has the same effect on shares and vise versa.
Full-scale study requires collection a sufficiently large volumes of data about activities of trade exchanges, interest rates offered by state banks, acknowledge with political situation in various countries. Even one event that is not significant at first glance, but considered in various situations, may influence market unexpected way. Defining of applicable strategies and respective tactics in order to have an effective action plan is a key for effective operating in stock market place.
Components of fundamental analysis
Checking of internal factors about company’s key financial indicators: annual results, market share of analyzed entity and its main directions for elaboration, replacements in top-management positions and announcements related to entity’s activity.
Estimating of market risks: combination of complementary and substitution goods, activity of competitors and possible launching of products, seasonality.
Research about business condition: availability of government donations, what are interest rates offered by financial institutions for representatives of the field, possibility of temporary or constant slack in production and general limitations applied for it.
Natural factors and unpredictable events: droughts or fires may influence cost for agricultural products. Terrorism, that influence political and economic situations and can be directed against certain enterprises. Natural disasters that can destroy plants or equipment and so on.
Political and economic aspects that affects legislation, affects external markets and conditions for trading there.
All of abovementioned can be analyzed using 2 sources: news and personal traders calendar. Although the first one can be such reliable data it causes reaction among market players, so should be taken into account for forecasts and analysis of changes and effects. The second one come down to managing of incoming data and timely processing of data. Most of them are composed by traders and reflect list of dates of important announcements, expected releases timelines for checking of accuracy of prognoses previously done. One tool should be used in a combination with another.
Fundamental analysis is a mandatory base for taking a decision of trader and respective strategy choosing and shouldn’t be disregarded just because of its complexity, because final results are worth of it.