| This article will attempt to highlight why fundamental | | | | Property, equipment, value of inventory, etc. For a |
| analysis should be a crucial part of any stock | | | | quick first pass on whether the small business of |
| investing criteria. | | | | interest may be a good investment you could |
| Stock price charts and quotes are readily displayed | | | | compare the asking price to the total company |
| across all forms of media which can result in | | | | assets minus any debt. Then compare the profit |
| investors being overly fixated with share price | | | | (sales minus expenses) and possible growth based on |
| movements. Also, the visual aspects of stock price | | | | sales and expenses forecasts. |
| charts can lead novice investors into the following | | | | Notably absent from the list is what the previous |
| misconceptions: | | | | owner bought the business for, the previous owner |
| - If a stock traded at $10 one year ago and is now a | | | | before them, the previous owner again, and so on. |
| bargain at $4 | | | | These questions would allow a graph of price versus |
| - A stock with a low share price (say $1) is cheap | | | | time to be created similar to a stock price chart. The |
| whereas a high share price ($70) is expensive To | | | | key point to be made is that the fundamental |
| help novice investors start thinking like savvy | | | | valuation of the business based on actual financial |
| investors we suggest a simple brain storming | | | | measures is the critical factor. Additionally, the details |
| exercise. The brainstorming exercise is to compile a | | | | of previous purchases are inconclusive as they more |
| list questions you would ask to the owner of a small | | | | than likely occurred in different economic conditions. |
| business you are interested in buying. | | | | Buying a Stock is Buying a Share of a Business... |
| The following non-exhaustive list contains some of | | | | Therefore similar questions to those highlighted in the |
| the most common questions (in no particular order): | | | | brainstorming example should be considered when |
| - How much income is being generated through | | | | buying a stock, which forms the basis of a |
| sales? | | | | fundamental stock analysis approach. Each publicly |
| - What expenses are associated with generating this | | | | listed company must release their audited financial |
| income? Advertising, rent, salaries, etc. | | | | results so start using fundamental analysis criteria in |
| - Are sales and expenses increasing / decreasing? | | | | your stock selection process! |
| - How much debt (liabilities) does the company have? | | | | Stop being fixated on share price alone. A company's |
| Accounts payable, bank loans, etc. | | | | share price only becomes useful when taking the |
| - How much assets does the company have? | | | | underlying fundamentals into account. |