Investment market analysis

Investment analysis is a part of the strategy which aim is to gain additional passive income. It helps to choose tools, which stimulate capital accumulation. Analysis of investment effectiveness is conducted in order to aggregate necessary information and control the project.

Core of the investment analysis

Investment analysis is a complex process and a set of procedures used to estimate the necessity to invest in some asset, its effectiveness and some other factors. Analysis is conducted in order to determine whether it is right decision to buy company’s shares. Besides, according to the universities lectures, this set of procedures used to identify alternative source of income.

This procedure decreases losses related to the purchase of securities or company’s shares. Successful traders constantly analyze market situation. It means that they analyze market before and after the purchase of some asset.

What for do we need market analysis

Investment market analysis is conducted to:

  • create short-term and long-term investment plan;
  • in terms of effectiveness, investor’s financial capacity and other factors, choose the most preferable asset;
  • identify all possible risks with which investor may face after the purchase of some asset;
  • work out basic marks on which investment strategy bases;
  • define advantages to invest in some particular asset.

In practice, investment market analysis provides broad answer to the question: should I invest in the chosen asset? Will it be profitable?

There are 2 basis or directions of the investment analysis:

  • subject or asset;
  • time.

Subject study is conducted before the asset purchase. It is necessary as at the stage of the forecast, analysis provides information about possible risks. During the analysis the following factors are shown:

  • investment goals and objectives;
  • estimation of the acceptable for the investor risk level;
  • output target;
  • project role;
  • further strategy;
  • personal features of all project participants, including chief executives in whom money is invested;
  • technical base;
  • investor’s financial capacity;
  • justification of investment in the chosen asset;
  • factors that may affect the forecasted investment results.

Apart from the subject study, there is a time analysis. It means analysis of the whole period of time during which the investor holds the asset. Time analysis corrects investor’s strategy, as a result losses connected to some particular project reduce.

For example, some company decided to update its business equipment. In the case investment analysis will include estimation of:

  • goals that may be solved through updating of business equipment;
  • future equipment update;
  • ways of how to reach the target;
  • resources whereby to meet the goal;
  • process of investment and many other factors connected to the equipment update.

In this case investment analysis will provide the following information:

  • likelihood of the project’s success;
  • project’s risk level;
  • investment effectiveness.

Investors put up their capital in different assets. It can be as well as real sector (production) as securities. According to the asset type, different investment analysis can be conducted.

Object and subject of the investment analysis

There are two types of investment objects:

  • real or capital;
  • financial.

Example of investment in real sector was shown in the previous paragraph. Such investments include:

  • equipment purchase and update;
  • purchase of land property or real estate assets;
  • researches;
  • marketing programs;
  • staff’s retraining and other.

Capital investments correspond to the productive process enhancement. As a consequence, investment analysis estimates all factors that may appear during the investment process.

When put up capital in the financial sector, organizational, legal and some other questions related to the purchase of the securities are analyzed. For example, investor estimates whether the price for the purchased securities will rise in the near future or not, and what dividend amount to expect.

Investment analysis subject may be person who is directly or indirectly interested in ensuring that the person investing in their asset will receive profit. In particular, it may be the head executives, staff, tax and other government agencies, creditors.

Analysis methods

According to the investment object, investors use different analysis methods of real and financial investments. There are differences between these two types. This is explained by the fact that investment in real sector are characterized by:

  • bring income no earlier than one year after the completion of operations (investment in securities can pay off in a day);
  • the amount of investment is significantly higher than investments in the financial sector;
  • more often associated with the goals set by the companies or enterprises;
  • have impact on the object of investment.

Analysis of investment in real sector is carried out in two directions, which take into account the economic efficiency of the project and the risks that may arise during its implementation. The first is analyzed through:

  1. Accounting estimate. It doesn’t include time factor. It means that economical investment analysis estimates different project factors, money supply and material resources, which stay unchangeable during some period of time through the accounting estimate. This method is considered to be additional as it demonstrates what to expect after investment, but it doesn’t take into account many other factors.
  2. Dynamic estimate. It includes time analysis. Economical investment analysis through dynamic estimate allows investor to determine the probability of one or another events because of the depreciation of the money supply (inflation influence). This method provides more accurate results.

When investor makes a decision to invest in financial instruments, the following methods of analysis are used:

  • fundamental;
  • technical;
  • portfolio methods.

Fundamental analysis of investment involves studies of the global market, particular industries and products that can affect the value of securities. It takes into account the changes in the world economy.

Technical analysis basis on the previous market trends. It analyzes price movements for particular securities. The result of the technical analysis is the forecast of the moment of the transaction (purchase or sale), it’s aim to get the maximum profit.

Portfolio methods provide the estimation of several securities that compose the so-called investment portfolio in terms of their profitability and risk level. In fact, this approach involves the search of several assets that will ensure maximum profit.

Alternative methods of analysis

According to the investor’s goals, we choose the analysis methods. So, when one company absorbs another, whose shares are not traded on the stock market, the first company evaluates the cost of organizations that are similar in many parameters and earlier put their shares on the market. In addition, analysis of the accounting records of the absorbed company is carried out.

When an investor plans to invest large amount of money in an asset, in order to determine risks and profitability, he can depend on the expert estimate. It is a complex of mathematical and logical calculations on the basis of which the final decision is made. This approach means that the investor attracts several experts who determine the probability of occurrence of some certain events (the appearance of factors) that can positively and negatively affect the required asset.

At the end, invited experts form a qualitative and quantitative assessment of the required company or portfolio of securities. Moreover, the final report on the conducted analysis includes recommendations, which can reduce risks.

Types of investment analysis

There are several types of investment analysis, but all pursue the same goals:

  • estimation of the required asset;
  • estimation of the investment effectiveness;
  • estimation of the possibility of the project’s realization.

According to the investor’s goals, analyze:

  1. Object. Particular companies, investors in terms of consumer or events that may affect the level of profit.
  2. Time period. Analysis takes into account events that occurred before the asset purchase, when the investors hold the asset or after the asset’s sale. For example, investors pay focus on the possibility of asset’s price increase and dividend amount.
  3. Depth. Analysis is conducted through the fundamental methods, keeping track of the trend movement (for example, price movement of securities of the base material sector) or express study.

Conducting investment analysis is an important stage in the creating the future strategies. It allows to determine the true value of an asset, risks connected to it and many other factors that affect the level of profit.

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  • Tuesday, December 15, 2015
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