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L7_Analysing_Financial_Statements

L7_Analysing_Financial_Statements - Analysing Financial...

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1 Analysing Financial Statements
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2 Valuation Techniques: Equities Fundamental Analysis: Using economic and company specific information to try to predict future earnings etc. and valuing the firm / equity based on these. Quantitative Analysis: Using statistical and mathematical techniques to extrapolate historical relationships, values, share prices etc. to get to a value for the equity. Technical Analysis: Interpreting trends and relationships in share market information (prices, volumes etc) graphically and predicting the future share prices based on these.
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3 Importance of Financial Statements Critical source of information for fundamental (and sometimes quantitative) analysis Objective: convert accounting numbers into economic numbers (a realistic economic reflection of the business and it future earnings capacity ) Economic ( real ) financial information and predictions should be the basis of valuation and not accounting information (which depend solely on accounting convention and rules and not necessarily on reality)
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