Use Investment Analysis

When you make an investment it is important to check the suitability and viability of the investment. This act of judging the feasibility of an investment is known as investment analysis. There are a number of ways for carrying out such analysis like, payback period, internal rate of return, net present value, cash on cash return etc.

Examining and analyzing a company’s financial statements before investing in that company is known as fundamental analysis. It is the first step to be taken prior to the actual investment. It helps in judging the company’s economical condition, financial position, credibility, public image, repaying capacity, goodwill, earnings graph and many other such factors. The company whose shares are being bought has to be in a financially sound condition. Otherwise if the company is not financially sound then the whole purpose of the investment gets defeated. This way one can make out whether the shares of that particular company are rightly priced, under-priced or overpriced. Profitability of the company is one of the most important criteria in terms of the value of that company’s shares. Therefore, higher the profitability, higher is the price of the shares.

It is also necessary to go through the trend or pattern of the price of the shares. This requires analysis based on the technical aspect of the investments. Information regarding the fluctuations in the price of the shares can prove to be a beneficial tool in carrying out such analysis. It is not a good idea to deal with a company whose shares witness extreme highs and lows. High rate of fluctuation in the prices of the shares indicate a high level of instability of the company. In order to be on the safer side, it is best to invest in a stable company. Thus the technical analysis deals with the past prices of the securities and also deals in the future by predicting the prices ahead.

One makes an investment with an implied expectation of earning positive returns. Taking up the task of research work is mandatory. Improvements in technology and increasing computerization has further aided in the process of analysis. It is now easier and faster to acquire, store and utilize all the necessary information required by the investor. The booming IT sector is highly responsible for creating a new and advanced society which is techno-savvy. For the purpose of research one does not need to collect and use information manually and can work much faster in this computerized era.

Investment analysis aims at rooting the source of two main factors. One is the return and other is the risk. The entire purpose of the analysis revolves around these two major factors. But there are other factors that are fairly important and are yet ignored by the investors. These are things like the investment cost, the tax applicable, the commission paid to the brokers etc.

The investor must be wise in taking any decision. He should indulge in both fundamental and technical analysis of the investment.