There are two basic ways that people can analyze stocks to determine
whether the stock should be bought or sold. One way is technical analysis.
This involves looking for patterns in the historical price and volume of the
stock and using these patterns to “trade” the stock, usually at short-term
intervals. The other way a stock can be evaluated is based on fundamental
analysis or quantitative analysis. This type consists of looking at a variety of
information about the company such as accounting statements, product
development and growth prospects. All this information is then used to
determine if money should be “invested” into the company, usually for long-
As mentioned above, there are many different things that fundamental
analysts look at when trying to determine the worth of a company. This
large volume of information can be overwhelming to new investors but can
also be extremely useful with a little experience. Remember that stock
prices, over the long term, are mainly based on expectations for the
company. Expectations are derived from news about the company and past
When looking at a company’s accounting statement, revenue is a great
place to start. Has the revenue of the company been increasing over the
last few years and does it appear that it will continue to increase? Then
look at the profits, assets and liabilities. Ideally, profits should also be
increasing along with the ratio of assets to liabilities. If, for example, the
revenue is increasing but debt is growing faster then assets, this might be
a sign of a long-term problem and should be examined closer.
Product development and growth are also good things to look at. In the
accounting statements you can probably find out how much they are
spending on developing new products. You can also read news articles
about the company or look for interviews with top executives to find out
about their plans for growing the company. Growth is an essential part of
adding value to a stock.
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