Investors have to make decision on the basis of financial analysis. Financial analysis provides strength and weaknesses of the company. To make investment decision, an investor has to the analyze the company. Some reasons for the investment analysis are given below:
To identify mispriced securities:
Security analysis involves examining a number of individual securities within the broad categories of financial assets. The purpose for conduction such examinations is to identify those securities that currently appear to be mispriced.
Fundamental analysis begins with the intrinsic value of any financial asset equals the present value of all cash flows that the owner of the assets expects to receive. Once the intrinsic value of the common stock of a particular firm has been determined, it is compared with security’s current market price of the common stock. If the current market price of the common stock is below the intrinsic value, a purchase is recommended. Conversely, if the current market price is above this intrinsic value, a sale is recommended.
To determine security characteristics:
The financial analysis is try to determine the certain characteristics of securities. Financial analyst should estimate a security’s future sensitivity to major factors and unique risk to determine the risk of a portfolio. The analyst will also want to estimate the dividend yield of a security during the next year to indemnity its suitability for the portfolio in which dividend yield is relevant. Careful analysis of such matters as a company’s dividend policy and future earnings and cash flows may lead to better estimates.
To get the information about the company:
An investor makes financial analysis to make the financial decision.
Sometimes investors fail form the decision due to lack of information. Success or failure of public limited companies depends much on their investment analysis and performance.
To make sound judgment and forecasting:
Investors can correct decision on the basis of the financial analysis. Therefore financial analysis is the base for the sound judgment and forecasting. In present situation, some investors are very conscious to make investment analysis in stock market. Investors gradually have to know that when to beat the market. Sometimes, investor fails to select right judgment and forecasting for the best securities.
To select of good security:
Financial analysis helps the investors to select the right security for investment. Funds available for investors are limited, so investors have to select best securities that provide high return.
To help in risk analysis:
Investors can predict the riskiness of the securities from the financial analysis. After the assessment of risk analysis, investors can determine the rate of return with the help of financial analysis.
To identify mispriced securities:
Security analysis involves examining a number of individual securities within the broad categories of financial assets. The purpose for conduction such examinations is to identify those securities that currently appear to be mispriced.
Fundamental analysis begins with the intrinsic value of any financial asset equals the present value of all cash flows that the owner of the assets expects to receive. Once the intrinsic value of the common stock of a particular firm has been determined, it is compared with security’s current market price of the common stock. If the current market price of the common stock is below the intrinsic value, a purchase is recommended. Conversely, if the current market price is above this intrinsic value, a sale is recommended.
To determine security characteristics:
The financial analysis is try to determine the certain characteristics of securities. Financial analyst should estimate a security’s future sensitivity to major factors and unique risk to determine the risk of a portfolio. The analyst will also want to estimate the dividend yield of a security during the next year to indemnity its suitability for the portfolio in which dividend yield is relevant. Careful analysis of such matters as a company’s dividend policy and future earnings and cash flows may lead to better estimates.
To get the information about the company:
An investor makes financial analysis to make the financial decision.
Sometimes investors fail form the decision due to lack of information. Success or failure of public limited companies depends much on their investment analysis and performance.
To make sound judgment and forecasting:
Investors can correct decision on the basis of the financial analysis. Therefore financial analysis is the base for the sound judgment and forecasting. In present situation, some investors are very conscious to make investment analysis in stock market. Investors gradually have to know that when to beat the market. Sometimes, investor fails to select right judgment and forecasting for the best securities.
To select of good security:
Financial analysis helps the investors to select the right security for investment. Funds available for investors are limited, so investors have to select best securities that provide high return.
To help in risk analysis:
Investors can predict the riskiness of the securities from the financial analysis. After the assessment of risk analysis, investors can determine the rate of return with the help of financial analysis.
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