fundamental analysis || long term investment
Introduction :)
fundamental analysis; Because in long terms companies grows not quickly but efficiently and you can make money multiple times example if you had invested 1 lakhs in Ratan Tatas Tata consultancy service in 2004 at the present it would be 17 lakhs, compounded growth is seen here if you have to make extra wealth by doing a job and have attain financial freedom after your retirement long term investment is very useful
Why should you learn?
you may have some doubts that why I should learn this ?
And if look for an advisor for this, you have no idea how much he knows and what skill he holds in this sector and their is a high scope of being easily fooled by someone
This is because those who are in this industry have made stock market a very big thing like it is out of the reach of ordinary people, so you need a basic idea about stock market in order to not being fooled by someone
Tools and skills required for fundamental analysis?
1. First of all you need an interest for this, This is the first skill you need as an investor in stock market
2. Data's about companies you are interested in
3. Basic mathematics
You need to study this for not being fooled by some one and for a financial freedom
Where do we gat a data about a company?
For fundamental analysis you have to analyse quantitatively and qualitatively
I will introduce a short cut for, if understood the MBV of company it means that you have understood the fundamentals about the company
What is MBV : Management Business Valuation
This means you that you have to study about the management of the company and learning about its business very well and valuating the business and by learning MBV you can understand the real value or the intrinsic value of the company, and this is the right way of taking delivery in long term investment
For qualitative analysis you have to about its business model if you don't get the idea about business model you should never invest in it foe long term
Then you have to check its managing back ground, like who is the manager , the CEO , their educational qualification or their skill for being in that position, the salary of the management like if the manger is taking a huge salary by generating a small amount it is not a good company to invest, you have to check the ethics of the company because you are going to become the share holders of the company and check how they have treated the early investors
Corporate governance how much transparent is the company, does it have a perfect organizing structure, are the workers happy or not, MOAT it is a competitive advantage, does it have a monopoly or does it have special advantage, then it is a good company for investing. related party transitions, which means does this company helps the other persons company they know or giving them special orders. industry, what is the industry of the company does it works or is it in loss, does the industry have potential. like this you need to analyse a company qualitatively, is this company famous does it have a brand like that
Where to get data's for qualitative analysis
1. Annual report; during every year the company prepares a professional document for the share holders, and this contains every details about the company, current position of the company, its journey, messages from the bord members and managers, what happened in the current year and their ideas for next year, what are the challenges in the industry and their strategies to oppose it like this many subjects and topics are added in the company annual report
2.Medias ,news, websites; you can follow websites for knowing the details, or medias etc
3.Industry associations; every industry and every sectors have their own associations
if you have these three things you can analyse a company easily and quickly
like if you want to know about the automobiles sector you just need to google automobile association and you will get all details about automobile sector
Quantitative analysis
checking profits and Growth,, if it is highly growing company you definitely have to invest, but you also have to check margin and growth like how much profit they make by selling a specific stock , earning sand growth their total revenue, expenses and growth checking the expenses is also a huge factor like does the company waste money on huge and unnecessary things, and if the expenses increase the profit decrease but if the profit decreased does it means hat the company is going down definitely not may be they have spend some money on infrastructure so you have to check expenses both way, and Debts are also a factor, Assets and liabilities, cash flow of the company and usage, financial ratio and investments of the company are some of the factors affecting qualitative analysis
Where to get data's for quantitative analysis?
For that we need financial statements, financial statements includes three different statements
P&L; profit and loss statement
Balance sheet
Cast flow statement
if you have these three things you can analyse a company quantitatively
so where do we get financial statement ?
From the annual report
Which means if need to analyse a company qualitatively and quantitatively we need a annual report from the company
Where to find a companies annual report ?
You can use screener or companies provided websites for this purpose
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