Trading Technique

The Very Basic of Fundamental Analysis

³ Fundamental Analysis

³ The Very Basics

³ Fundamentals: Quantitative and Qualitative

³ Quantitative Meets Qualitative

³ The Concept of Intrinsic Value

³ Criticisms of Fundamental Analysis

³ Business Model

³ Competitive Advantage

³ Management

³ Conference Calls & Management Discussion and Analysis (MD&A)

³ Ownership and Insider Sales & Past Performance

³ Corporate Governance

³ Financial and Information Transparency & Stakeholder Rights & Structure of the Board of Directors

³ Customers & Market Share

³ Industry Growth & Competition

³ Regulation

³

Fundamentals: Quantitative and Qualitative

You could define fundamental analysis as “researching the fundamentals”, but that doesn’t tell you a whole lot unless you know what fundamentals are. As we mentioned in the introduction, the big problem with defining fundamentals is that it can include anything related to the economic well-being of a company. Obvious items include things like revenue and profit, but fundamentals also include everything from a company’s market share to the quality of its management.

The various fundamental factors can be grouped into two categories: quantitative and qualitative. The financial meaning of these terms isn’t all that different from their regular definitions. Here is how the MSN Encarta dictionary defines the terms:

Quantitative – capable of being measured or expressed in numerical terms.

Qualitative – related to or based on the quality or character of something, often as opposed to its size or quantity.

In our context, quantitative fundamentals are numeric, measurable characteristics about a business. It’s easy to see how the biggest source of quantitative data is the financial statements. You can measure revenue, profit, assets and more with great precision.

Turning to qualitative fundamentals, these are the less tangible factors surrounding a business - things such as the quality of a company’s board members and key executives, its brand-name recognition, patents or proprietary technology.