The Main Blocks of Qualitative Business Parameters in Fundamental Analysis
The purpose of fundamental analysis is to determine the value of the company (issuer), as well as to
evaluate the
security and determine the correctness (fairness) of its price on the market. The value of a company and
its securities
is influenced by many factors, among which the following are key:
- political and economic situation
- activities of competitors and the situation in the industry
- the financial condition of the company and its value in the eyes of investors
The structure of fundamental analysis includes such areas of analysis as macroeconomic analysis, industry analysis, analysis of the company (issuer), analysis (valuation) of securities, and factors can be divided into two groups: qualitative factors and quantitative factors.
Let's look at the qualitative factors in more detail. In this group, four key blocks can be distinguished, which are presented in Figure 1.
What information can an investor get based on the analysis of these indicators? Business model. Analysis of the business model will allow you to find answers to questions such as what exactly the company does and how it conducts its business; what key competencies and factors determine the company's success; what is the business concept; how the company positions itself within the industry; how the company creates value for its customers and shareholder value; how the company generates income and how it generates profit, etc.
Competitiveness. The company's long-term success means the company's ability to maintain and maintain its competitive advantage, then shareholders can receive good dividends over the long term, and investors can be confident that they have made the right conclusion. An analysis of a company's competitiveness can include metrics such as brand, reputation, image, as well as various quantitative metrics such as market share, product types, customer satisfaction, prices, etc.
Management quality and corporate governance. Issues such as the quality of management, competencies, policies and procedures, the relationship of the company with stakeholders have a decisive impact on the successful and sustainable development of the company in the long term. Industry affiliation of the company. This group can also include both quantitative and qualitative indicators and includes issues such as industry trends, government regulations, business cycles, etc.
As already mentioned, fundamental analysis consists of different areas of analysis. We have reviewed the main qualitative parameters of the business.