Initiating Analysis!

Choosing a stock must be a decision based on a strong overview of a company, after all it is all about identifying the pros and cons of any business proposition.

Performing fundamental analysis entails a deep study of the company in order to deduce, is this proposition really as good as it sounds? Keeping in mind that any advertising or investor relation aimed generally to promote the company's business is geared towards a positive outlook of the company in order to make it sound extraordinary at times and wonderful to be part of. However at times there is often more than meets the eye, and only a keen eye for detail is able to filter what is relevant and what is not.

Typically, there are some considerations and factors to take note of, when choosing a company. These are key elements which must be collected prior to any proposed investment in general.

The Opportunity, The Strength

• Is the company based on a profitable model and a key sector.
• Is the company potentially an international business.
• Is the company able to meet supply at fixed costs.
• Is the company able to grow supply without further cost to infrastructure.
• Is the company's management proactive in building the business. 

The Downside, The Weakness

• Is the company able to compete with the current market.
• Is the company dependant upon foreign sales which brings risk through volatile currency exchange.
• Is the company in considerable debt and locked in high interest charges.
• Is the company likely to dilute shares in order to continue operations.
• Is the company consistently issuing shares diluting shareholder equity.

The Management, The Board, The Financials

• Does the management have a history of prior achievements.
• Does the management have experience in the public sector.
• Does the management have experience in this specific business sector.
• Quarterly reports, do these show engagement and productivity leading to growth.
• Final year results, do these show a pattern for growth or decline each quarter.
• Corporate updates and general operations, are directors investing in their own company.

The directors and management are often critical to a company’s success. It is imperative to research the board of directors background and keep very close tabs on their activities and announcements.

The CEO (Chief Executive Officer) and Executive Chairman drive success and head up the company. There is also the Financial Director who normally handles the accounting and some corporate affairs duties. There may also be Operations Managers dealing with day to day running of the business, depending on its size and nature.

The board normally comprises of highly skilled and experienced Non-Executive Directors who may at times sit on the board of numerous companies and are not simply limited to one. These Non-Executive Directors advise Executive Directors on certain aspects of the business.

The above are merely basic details initiating our understanding of what to look for, and what to avoid. We also need to have a close look at the sector in question and not simply the company in question. The company could be a great performer, however the sector may lack future growth, hence rendering our analysis fruitless as we seek current fundamentals rather than a future outlook.

In summary we look for the sector, the management and lastly the company. Many believe that fundamental analysis is all about the company itself. Although they are partly correct, the company analysis is simply the icing on the cake in comparison to achieving true fundamental analysis.