2Valuation 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.
3Importance 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 informationand predictions should bethe basis of valuation–and not accounting information (which depend solely on accounting convention and rules and not necessarily on reality)
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