Financial Statement Analysis: Beginners Stock Trading - Understanding Fundamental Analysis

Beginners Stock Trading - Understanding Fundamental Analysis

Beginners Stock Trading - Understanding Fundamental Analysis

Fundamental Analysis is an important part of beginners stock trading research. While it can be less fun than technical analysis (charting), the value it brings is indispensable. Half of the challenge is knowing where to start. Fundamental analysis involves so many different aspects, it is easy to get lost. The goal is to evaluate as much information as you can regarding the company and its corresponding industry.

The general idea is to research various quantitative aspects of the company. This includes revenue, profit, and debt. There are also more qualitative aspects to investigate, such as a company's ability to compete with others in the industry. Putting these pieces together will give you the "big picture" of the company and its direction, in beginners stock trading.

Delving deeper into qualitative factors will be challenging, as there is no real way to assign a number to these values.

It's more of a "touchy-feely" process, when forming your opinions in beginners stock trading. A few of the most common factors are listed below:

Management - Who is involved? Have they been involved in other successes or failures in the past?

Business Model - What does the company do, and how does it make money?

Competitive Advantage - What, if anything, makes the company better than its competitors? Patents? Advanced processes?

Market Share - Is the company's market share growing or shrinking? How does it compare to its competitors' market share?

Industry - Is the industry growing or shrinking in the current economy?

Looking at quantitative factors is a bit easier, as each factor should have a specific number or yes/no answer.

The most important aspects in beginners stock trading are as follows:

Financial Statements - Are they audited by an independent auditor?

Balance Sheet - What are the company's assets and liabilities valued at?

Income Statement - What are the company's revenues, expenses, bottom line, and profits (if any)?

Loans - How much does the company owe? How soon will they be debt free?

Cash Flow - What is the company's cash flow value?

Of all the fundamentals, the financial statements are the most important, in beginners stock trading. Knowing where the company stands, in regards to profit, assets, liabilities, and cash flow, is a must. Then the qualitative aspects should be researched. This should form an overall representation of the company. Is the company successful now? Will it be successful in the future? Is management making the right decisions and leading the company in the right direction? Once that research is complete, you can move on to technical analysis to determine the stock's trend as well as your entries and exits.

Adam W. Porter is a successful investor, and has been trading stocks for over a decade. Adam is the owner of, where he offers beginners stock trading tips and advice through a free newsletter. Learn more about Adam and sign up for his newsletter by visiting today.

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