While the concept behind discounted cash flow analysis is simple, its practical application can be a different matter. The premise of the discounted cash flow method is that the current value of a company is simply the present value of its future cash flows that are attributable to shareholders. (more…)
The cash flow statement shows how much cash comes in and goes out of the company over the quarter or the year. At first glance, that sounds a lot like the income statement in that it records financial performance over a specified period. But there is a big difference between the two. (more…)
Investors often overlook the balance sheet. Assets and liabilities aren’t nearly as sexy as revenue and earnings. While earnings are important, they don’t tell the whole story. The balance sheet highlights the financial condition of a company and is an integral part of the financial statements.
The income statement is basically the first financial statement you will come across in an annual report or quarterly Securities And Exchange Commission (SEC) filing. It also contains the numbers most often discussed when a company announces its results – numbers such as revenue, earnings and earnings per share. (more…)
The concept of fundamental analysis is much wider than of its technical counterpart. The fundamentals of the economy include a huge amount of data reflected in various events, statements, political and economic reports, conditions and other information.
Forex fundamental analysis studies and uses this data to predict further asset’s fluctuations. The key subject of Forex fundamental analysis is the worldwide financial activity that involves both financial and economic factors. Basically, fundamental analysis shows what price fluctuations can or should take place as a consequence of a certain economic event, such as economic growth, employment rate, deflation or inflation, etc.
Fundamental information can be presented in many forms. It can be a report on the current state of the U.S. market made by federal authorities. Or it may be the news about possible changes in European Central Bank policy. Even unemployment data should be considered as fundamental.
As a rule, such information leads to significant economic changes, which triggers a certain reaction of Forex traders. Moreover, the market can be influenced by events that did not happen yet. For example, before an important report is released, there are always forecasts created by analysts – and these data may have a significant impact on the quotations in advance. Speculation on a sharp increase in interest rates can begin several hours or even days before the announcement of any changes are made. That is why many traders before the announcements act like they get ready for the Olympic Games. And we recommend you to do the same.
In general, fundamental Forex indicators provide a large set of data used in fundamental analysis. They are similar to the fire alarm signal that reacts to smoke. They indicate how stable the economy is and whether it is going to move up or down.
When building fundamental analysis, it is crucial for trader to know the value of the indicator, as well as the expectations and forecasts of the market in accordance with this value. Also it is vital to take into account what impact the predicted figures may have on the results of your trades. But do not be scared. You do not need to be an academician to be able to calculate all this data. Practice make perfect, and sooner or later you will understand how effectively implement your knowledge in your daily trading activity.
But alas, this type of analysis has its disadvantages. Fundamental analysis is a valuable tool for assessing possible changes in the economy, but it is not that effective when it comes to forecasting possible fluctuations of exchange rates. Since the fundamental information is usually received in the form of reports, publications and announcements, you just cannot bank on its accuracy. Also, the market depends on the emotional state of traders. This condition can be the result of their reaction to economic reports or other events.
Probably, you have got the impression that fundamental analysis involves too much uncertainty. And you are absolutely right here – nothing can guarantee that a currency pair will move in strictly specified direction. Its behavior may dramatically change once new fundamental information comes out. Yet, it does not mean that Forex fundamental analysis should be neglected.