The company analysis should provide a comprehensive picture of an individual company. For this purpose, the company is examined from two perspectives:
Qualitative and quantitative
The qualitative assessment is based on subjective criteria that are difficult or impossible to quantify: In order to survive under pressure from competitors, the company must have a sustainable business model and a differentiated product range.
The production process should be as efficient as possible, and innovations should be driven forward. Besides, the question arises as to whether the company has a capable and dynamic management team.
It takes the experience to assess and weight these criteria, but they are essential when it comes to evaluating the long-term potential of the company.Quantitative business analysis
The quantitative analysis, on the other hand, provides for a more objective assessment of the company, based on figures from the company balance sheet.
In this way, it is possible to create a basis for comparison with other competitors. In the following some of the many characteristic numbers are presented:
The price-earnings ratio (P/E ratio)
The price-earnings ratio (P/E) is probably the best-known fundamental indicator. It is the ratio of the share price to the earnings per share generated: P/E = (current share price)/(earnings per share).
The resulting value is then compared with the industry P/E ratio, i.e., the average P/E ratio of companies in this business segment. Here it applies that a lower KGV than that of the industry is to be evaluated tendentially positively.
This is because the fundamentalist considers the company to be undervalued because the market value per share (price) is lower compared to the profit per share than for companies active in comparable fields of activity.
One should, therefore, use the industry average for comparison when evaluating key figures such as the P/E ratio. The meaningfulness of the P/E comes up against its limits when companies incur losses because of a negative P/E results.
Price/Cash Flow Ratio (KCV)
The KCV indicates the ratio of the price to the cash flow per share. In simplified terms, cash flow is the surplus in sales from the company's business activities. It is therefore widely used as an indicator of profitability.
This indicator can also be used if a company makes a loss after it is founded because many investments have to be made, or in the case of highly volatile sectors, if high profits are formed in one year and losses in the next.
A further advantage of the KCV compared to the P/E is that the cash flow is more difficult to manipulate than the profit due to the determination procedure. In determining the benefit, the result can be strategically controlled to a certain extent by leeway when setting write-downs and provisions.
In contrast, depreciation and provisions are not included in the calculation of cash flow. So if the PER and the KCV of a period are different, this can be an indication that some of the accounting leeways have been exploited or that a lot has been invested.
Besides, the KCV creates better international comparability than the P/E ratio. This is since the P/E is hardly useful for international comparisons because of the different legal situation for determining profits. It applies again that in the industry comparison a low KCV, the tendency is evaluated positively.
The trend concept is indispensable for the technical approach of market analysis. As the trend line, it helps to determine the market trend. And this market trend is crucial because we align our transactions with trends.
Trend-analysis for day trading
A trend has three directions
You should not imagine these trends as straight-line price movements. Instead, patterns take the form of irregular movements. These jagged movements almost look like successive waves.
These waves include highs and lows. The direction in which these waves move shows us the trend of the market. In total, there are three trend directions: up, down and sideways.
An uptrend is characterized by a series of successively higher lows and higher highs. A downtrend is precisely the opposite of an uptrend.
A market gap, on the other hand, can happen at the up- and downside. Day traders make use of the gap and go pattern especially when the gap is clearly above the average gap. When a stock is gapping up significantly like >+4%, then the following price move will be strong and related to high volume.
Short-term trends with a duration of less than two to three weeks
Chart technicians often make use of the described classification of a trend. This also serves the communicability of technicians among each other.
Because if one chart technician mentions that this is a tertiary trend, the other chart technician knows what is meant, namely a short-term trend with a duration of less than two to three weeks.
In practice, misunderstandings, unfortunately, occur time and again, because chart technicians with different analysis intervals also have different views on long-term, medium-term and short-term trends. For example, a pattern of two hours duration may be a primary trend for one technician, but a tertiary trend for another.