Examples of technical analysis in the following topics:
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- In addition to using financial ratio analysis to compare one company with others in its peer group, ratio analysis is often used to compare the company's performance on certain measures over time.
- Trend analysis can be performed in different ways in finance.
- For example, in technical analysis the direction of prices of a particular company's public stock is calculated through the study of past market data, primarily price, and volume.
- Fundamental analysis, on the other hand, relies not on sentiment measures (like technical analysis) but on financial statement analysis, often in the form of ratio analysis.
- Creditors and company managers also use ratio analysis as a form of trend analysis.
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- Technical analysis techniques will not be able to consistently produce excess returns, though some forms of fundamental analysis may still provide excess returns.
- Semi-strong-form efficiency implies that neither fundamental analysis nor technical analysis techniques will be able to reliably produce excess returns.
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- Traders identify market trends using technical analysis, a framework which characterizes market trends as predictable price tendencies when price reaches support and resistance levels, varying over time.
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- Analysts may research a stock from a fundamental or a technical lens.
- Fundamental analysis involves analyzing a company's financial statements and health, its management and competitive advantages, and its competitors and markets .
- Technical analysts study the patterns and price fluctuations and attempt to forecast the direction of prices through the study of past market data, primarily price, and volume.
- A stock's price is essentially determined by the buying and selling decisions of fundamental and technical analysts, who often manage large sums of money and have access to broad pools of data.
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- Ratio analysis using financial statements includes accounting, stock market, and management related limitations.
- Ratio analysis using financial statements as a tool for performing stock valuation can be limited as well.
- While the weak form of this hypothesis argues that there can be a long run benefit to information derived from fundamental analysis, stronger forms argue that fundamental analysis like ratio analysis will not allow for greater financial returns.
- In another view on stock markets, technical analysts argue that sentiment is as much if not more of a driver of stock prices than is the fundamental data on a company like its financials.
- These audiences also see limits to ratio analysis as a predictor of stock market returns.
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- When finance is talked about in the context of business decisions, it is called corporate finance (technically, corporate finance deals only with corporations, while managerial finance deals with all types of companies, but we will use the terms interchangeably).
- Apple used financial analysis to decide to fund the development of the iPod.
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- Balance sheet analysis is process of understanding the risk and profitability of a firm through analysis of reported financial information.
- Balance sheet analysis consists of 1) reformulating reported Balance sheet, 2) analysis and adjustments of measurement errors, and 3) financial ratio analysis on the basis of reformulated and adjusted Balance sheet.
- Two types of ratio analysis are performed: 3.1) Analysis of risk and 3.2) analysis of profitability:
- Risk analysis consists of liquidity and solvency analysis.
- Cash flow analysis is also useful.
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- Financial statement analysis, also known as financial analysis, is the process of understanding the risk and profitability of a company through the analysis of that company's reported financial information.
- There are four methods for making these types of comparisons: vertical analysis, horizontal analysis, ratios, and trend percentages.
- In a vertical analysis, each item is expressed as a percentage of a significant total.
- This type of analysis is especially helpful in analyzing income statement data .
- In vertical analysis each item is expressed as a percentage of a significant total.
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- Two types of ratio analysis are analysis of risk and analysis of profitability:
- Risk Analysis: Analysis of risk detects any underlying credit risks to the firm.
- Risk analysis consists of liquidity and solvency analysis.
- Profitability analysis: Analyses of profitability refer to the analysis of return on capital.
- Explain how a company would use the financial statements to perform risk analysis and profitability analysis
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- While we have based this example on a smaller business and, while forecasting balance sheets demonstrates completeness and a high level of technical integrity in forecasting, we feel the process is complex and better left to a professional.