What you need to know about security analysis...

What is security analysis?

It is valuing the assets, debts, warrants and equity of companies from the prospective of an outside investor using publicly available information. Security analysts also try to calculate the effect of market fluctuations on the value of securities.

There are three types of securities analysis:

Key takeaways

Security analysis is the process of valuing a company's assets, debts, warrants, and equity from an outside investor's perspective using publicly available information to calculate market fluctuations' effects.
Financial analysis determines a stock's intrinsic value by calculating the present value of future income discounted at a risk-related rate, examining factors like earning potential, competitiveness, management quality, and dividend policy.
Technical analysis assumes stock prices depend on market supply and demand rather than intrinsic value, using charting to identify price movement patterns that predict future movements based on current market information.
Quantitative analysis uses mathematical measurements, modeling, and calculations to study precise, definitive values like company earnings, allowing for easy comparison and prediction without requiring subjective value judgments.

Financial analysis suggests every stock has an intrinsic value equal to the present value of its future stream of income from that stock discounted at an appropriate risk related rate of interest. Analysts will look at earning potential of a firm, competitiveness, quality of management, dividend policy and many other areas to arrive at a value. Investment recommendations will then be made by comparing the intrinsic value with the current market value.
Technical approach assumes that the price of a stock depends on demand and supply in the market place and has little relation to intrinsic value. It assumes all financial data and market information for a stock is reflected in the current market price and through charting, price movement patterns can be identified to show future price movements.
Quantitative analysis aims to understand and predict through use of mathematical measurements, modelling and calculations. By studying precise, definitive values that don't require value judgements, such as a company's earnings, it allows easy comparison and calculation.