Things to Remember While Conducting Fundamental Analysis
Many of us are not aware of what they are doing while trading and it is said that the risk comes from not knowing what you are doing. It is also said that that the fundamental analysis of companies is key to sustainable wealth creation over the long term. To assess the long-term prospects of a company and its competitive advantage you must analyze it fundamentally.
Vision of industry
The investor must know the external environment in which the company operates, in order to know the prospects of a company. One must be able to assess the parameters like the size of the industry both domestic and global. One should also look the import-export scenario of the company that indicates the potential for the company. Likewise, one must understand the industry growth stage along with the changing trends and intensity of competition. Its future plans, including expansion, diversification and acquisitions can also be sensed from this.
Position of the company
You must find out the assessment of a company’s positioning as it let you know about how well it is placed within the industry and its strategy to achieve long-term goals. You must understand the target segments of the company in terms of geographies and demographics, when evaluating a company’s positioning. Check whether it caters to business or directly to consumers. This will let you know about the competitive advantages of the company and provides insights about the appropriateness of strategy in achieving its stated long-term vision. This will reveal the challenges that the company is likely to face while pursuing its growth strategy. It might be a risk related to the industry performance, competition, cost pressure and adequacy of funds to name a few.
Quality of management and corporate governance
We know that a company is run by people so it is important to understand how they qualify on integrity. Take a look on the assessment of the management’s capabilities, including the second rung leadership, is essential because it defines the strategy and decisions taken by the company. The corporate governance practices are also important. Corporate governance practices like disclosure norms, transparency in reporting, board practices and quality of discussions, profile of board members and independence of the board.