Wednesday, September 12, 2007

Systematic Analysis: Quantitative Analysis

We now come to the fourth part of our look at Systematic and Consistent Financial Analysis Decisions: The Quantitative Analysis. With the help of various ratios, models, and time series, and forecasts, an analyst can begin to get a better look at potential investments. The majority of this information can be obtained through or derived from the balance sheet, income statements, and cashflow statements of the companies.

Why would an analyst want to use Quantitative Analysis? There are four good reasons. 1) Most of the information is standardized already, making comparison of numbers easier. 2) Trends can be observed from the numbers, comparing the company to its past performance as well as peer performance. 3) Assuming that you are investing in the U.S. or in Canada, there is a great amount of transparency that is legally enforced. This helps ensure a level playing field. 4) Benchmarking - ratios can be used to check whether investments meet industry norms. Visit Yahoo Finance or Hoovers to get more information.

Looking at the Quantitative data is a good way to eliminate possible bad investments. This step will not guarantee a good investment, but it may help keep the investor from making a bad mistake. With this knowledge in tow, its time to narrow our search further with Step 4: Detailed Accounting Analysis.

I will likely revisit this topic again at a later date. There is just so much to learn and talk about! Thanks for visiting and drop me a comment.
---------Sincerely, Trevor Stasik.
(Much of the information presented in this post is being borrowed from Gary Giroux's book Financial Analysis)

Previous posts in the series:
  • Systematic and Consistent Financial Analysis Decisions
  • Systematic Analysis: The Purpose Of The Financial Analysis
  • Systematic Analysis: The Corporate Overview

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