Financial analysis
In finance, financial analysis is the work product of the activity of a financial analyst or a function , whereby it has an analysis of finances and financing as its content.
General
Financial analyzes are usually written in writing and relate in particular to the balance sheet analysis of economic entities such as companies , funds , states and their subdivisions ( due diligence , SWOT analysis , municipal annual financial statements ) or private households ( income and expenditure accounting , private liquidity accounting ), the analysis of economic sectors ( industry structure analysis ), market analyzes ( market data from the goods market or financial markets : money , foreign exchange and capital markets ), competitor analyzes , competitor analyzes or the analysis of financial instruments ( securities analysis and here especially the stock analysis ).
Financial analyzes differ with regard to their analytical goal according to whether they are intended by the financial analyst for internal purposes of his employer ( e.g. credit checks at banks or the analysis of the insurance assets of insurers ) or for customers or the public (e.g. analyzes by rating agencies ). Financial journalists (e.g. in stock market letters ) and individual investors can also prepare financial analyzes.
Legal issues
Article 3, Paragraph 1, Number 34 of the Market Abuse Ordinance provides a legal definition of financial analysis, according to which “persons who, in the course of their professional or business activities, prepare information about financial instruments or their issuers that directly or indirectly contains a recommendation for a specific investment decision and a to be made available to an indefinite group of people ”, are active in the context of financial analysis. The WpHG requires them to have the necessary expertise , care and conscientiousness .
The Financial Analysis Ordinance (FinAnV), which was repealed in January 2018, stipulated the proper preparation and presentation of financial analyzes in accordance with Section 85 (1) sentence 2 WpHG in Section 1 FinAnV , whereby, in accordance with Section 2 FinAnV, the names of the creators, the designation of their professions , in their practice they prepare the financial analysis, and the name of the company responsible for the preparation had to be given when a financial analysis was presented. In the financial analysis, according to § 3 FinAnV, information about facts , information about value judgments by third parties, in particular interpretations or estimates and own value judgments, in particular projections , forecasts and price targets, had to be carefully differentiated from one another and identified. In accordance with Section 4 (2) FinAnV, all essential sources of information, in particular the issuers concerned , were to be named in the financial analysis . Finally, it had to be stated whether the financial analyzes were made available to the issuer before they were passed on or published and whether they were changed afterwards.
content
Financial analyzes include the systematic processing and communication of information about the financial situation of economic subjects, sectors and markets. They make statements about financial risks , contain forecasts and evaluations ( ratings ). Financial analysis methodically uses chart analysis, technical analysis, fundamental analysis and market status analysis:
- The chart analysis deals with the price development of securities , stock exchange indices , etc., trying to draw from patterns in past price development conclusions about its further development.
- The technical analysis tries to determine favorable buying or selling times from the price and sales history of the underlying , and thus to predict the price development - or at least the probability of its occurrence .
- The fundamental analysis is concerned with the business data of a company and its economic environment. It tries to calculate a “fair” or “ intrinsic value ” of the company and possibly its shares and assumes that the shares will sooner or later approach this fair value due to a (not perfect, but existing) market efficiency . So it is a form of company valuation .
- The sentiment analysis takes into account the moods of market participants and tries to derive the development of stock exchange prices from this ( time series analysis with trend extrapolation and exponential smoothing ).
Financial research rarely produces precise results. A combination of two or even all three forms of analysis is often used in order to arrive at a more reliable result.
The Research developed macro-analysis, the investment advice accepts the analysis of financial products , portfolio management and asset management analyze portfolios ( loan portfolio , investment portfolio ).
The financial analysis is divided into three sections, namely the retrospective (compilation of data from the past), analysis of the relationships and forecast. The selection of sources is important , for which primary sources have priority, for example because they represent direct information from the company to be analyzed ( annual reports ), while other financial analyzes that have used primary sources are processed as secondary sources.
Results of the securities analysis
There are appropriately trained financial analysts who prepare extensive company studies and in the course of these usually calculate a price target and give a trading recommendation such as "Buy", "Accumulate" or "Sell". A performance measurement that compares the predicted course with the actual course can be used to monitor success .
The result of the analysis is often a recommendation for action. The analyst classifies the examined security or the examined market into categories. The usual recommendations are:
While buying and selling are self-explanatory, the recommendation “hold” needs some interpretation. “Hold” usually means that the expected price changes, taking into account the transaction costs, do not allow a clear recommendation. If the investor already owns the paper, it is not worth exchanging for a paper rated “Buy”. If he does not have it, he should preferably purchase a paper rated “Buy”.
Some analysts differentiate more and lift highly recommended (high-risk) shares with the attribute "strong" ( German strong , clear ) out. A further differentiation can mean the word "accumulate" or "break down":
- Clear Buy ( English Strong Buy )
- Buy ( English Buy ),
- Accumulating ( English Accumulate )
- Hold ( English Hold )
- Remove ( English Reduce )
- Sale ( English Sell )
- Clear sale ( English Strong Sell ).
If the recommendation is not indicated otherwise, it is an absolute recommendation (that is, independent of market developments ). In some cases, however, analysts take the market development as given and rate papers relative to the market. The judgments are then:
- English outperformer → better than the market,
- English market performer → according to the market,
- English underperformer → worse than the market.
Such an evaluation requires the specification of an index as a benchmark .
A recommendation can also be based on the weight of the individual investments in the portfolio . For example, the analyst recommends that securities be allocated according to one's own risk tolerance
- overweight ( english overweight ) if the securities have good capital appreciation opportunities,
- Underweight ( English underweight ) when the papers have poor appreciation opportunities.
Usually, the analyst's recommendation is differentiated according to investment duration and risk tolerance . For example, an analyst can recommend:
- Short term: hold,
- Long term: sell.
He therefore expects long-term impairment .
Individual evidence
- ↑ See e.g. B. Benjamin Graham , Secrets of Securities Analysis , FinanzBook Verlag, 1999, ISBN 3-932114-24-8 .
- ↑ Klaus Spremann / Patrick Scheurle, Financial Analysis , 2010, p. 1
- ↑ Klaus Spremann / Patrick Scheurle, Financial Analysis , 2010, p. 2
- ↑ Klaus Spremann / Patrick Scheurle, Financial Analysis , 2010, p. 4 f.
- ↑ Klaus Spremann / Patrick Scheurle, financial analysis , 2010, p. 6
