Technical Analysis What is Technical Analysis? Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future.
By studying and evaluating past and current data, investors and traders attempts to gain an edge in the markets by making informed decisions.
Fundamental Analysis There are two basic types of stock analysis: Fundamental analysis concentrates on data from sources including financial records, economic reports, company assets, and market share. Also, the earnings report released by a company during its quarterly earnings press release is analyzed by investors who look to ascertain how much revenues, expenses, and profits a company made.
There are different ratios that can be used to determine how healthy a company is. For example, the current ratio and quick ratio are used to estimate whether a company will be able to pay its short-term liabilities with its available current assets.
The formula for current ratio is calculated by dividing current assets by current liabilitiesfigures that can be gotten from the balance sheet.
Although, there is no such thing as an ideal current ratio, a ratio less than 1 could indicate to the stock analyst that the company is in poor financial health and may not be able to cover its short-term debt obligations when they come due.
Looking at the balance sheet still, a stock analyst may want to know the current debt levels taken on by a company. In this case, a stock analyst may use the debt ratiowhich is calculated by dividing total liabilities by total assets. A debt ratio above 1 typically means that a company has more debt than assets.
The financial statement of a company can also be compared to that of one or more other companies within the same industry. A stock analyst may be looking to compare the operating profit margin of two competing companies, by looking at their income statements.
The operating profit margin is a metric that shows how much revenue is left after operating expenses have been paid and what proportion of revenue is left to cover non-operating costsand is calculated as operating income divided by revenue. A company with an operating margin of 0.
In other words, the company uses 70 cents out of every dollar in net sales to pay for its variable or operating costs. Technical Analysis The second method of stock analysis is technical analysis.
Technical analysis focuses on the study of past market action to predict future price movement. Technical analysts analyze the financial market as a whole and are primarily concerned with price and volume, as well as the demand and supply factors that move the market.
For example, using a chart, a technical analyst may mark certain areas as a support or resistance level. The support levels are marked by previous lows below the current trading priceand the resistance markers are placed at previous highs above the current market price of the stock.
A break below the support level would indicate a bearish trend to the stock analyst, while a break above the resistance level would take on bullish outlook. Technical stock analysis is effective only when the price trend analyzed is influenced by supply and demand forces.
When outside factors are involved in a price movement, analyzing stocks using technical analysis may not be successful. Both fundamental and technical analysis can be done independently or together.
Some analysts use both methods of analyses, while others stick to one.Equity bank is the largest bank in Kenya by customer deposits and the best bank in the world in terms of return on assets.
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Equity Analysis Share Price Movement Essay Share Price Movement CHAPTER I INTRODUCTION ABOUT THE TOPIC A share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company.