The best Types of Financial Analysis

The best type of financial analysis will be determined by your investment goals and the financial Instruments that you have chosen to meet those investment goals.  You also need to understand the investment’s historical average performance.  You want to be able to measure your individual performance against the investments historical average performance.

 Your own individual investment portfolio should be diversified.  Investments can be classified as Bonds, cash, ETF’s, Mutual funds’, stock’s and real estate.

 When analyzing stocks you can review a stocks performance by two analytical methods.  The first method is called a fundamental analysis.  The second method is called a technical analysis.

 A fundamental analysis approach is where a professional investor will review a companies balance sheet and income statements.  The purpose of this analysis is to predict the future stock’s price movements due to the underlying companies financial fundamentals.

 The second analysis approach to picking stocks that a professional investor will utilize is called the Technical analysis.  An professional investor will review the past and present stock price movements of the underlying company.

 The goal for the technical analysis is to predict the future stock price movement based upon the past historical trend lines of the high and low of the price of the stock.  As an investor your goal is to purchase the stock at it’s low price point and to sell the stock at it’s high price.

 By using a combination of both stock analysis methods a professional investor will have a good understanding of when to purchase and stock and when to sell a stock.  The goal of an professional Investor is to have a capital gain as opposed to a capital loss.

 When analyzing  Real Estate there are a couple of methods of financial analysis.  The method you choose will be determined by your overall goals for Real Estate.  Is your purpose for owning Real Estate mainly to own a primary residential  property?  Or is your purpose of owning Real Estate is to generate an expected stream of reliable income?

 If your goal is to decide if you should rent an apartment, live at home with your parents, or to own your home, then your analysis is totally different than a person who is looking to use Real Estate as means to generate an expected reliable stream of income.

 As a person who is being a first time home buyer, you need to determine if your income can sustain and pay your mortgage payments.  You also have to factor into the equation property maintenance cost.  Property heating and utility cost.  Do you have enough reserves to pay for a new furnace,  ac conditioning unit, replacement of your roof etc?

Purchasing a home is a very emotional experience for a first time home buyer.  For an investment professional  purchase rental property is an very emotional experience as well.

 For an investment professional there is the emotions of greed and fear.  You also have the emotions of  price of ownership and being a landlord.  There is the emotions of frustrations of dealing with difficult tenants.

 Real Estate analysis for investors should include some of the following types of analysis;

The Capitalization rate analysis is taking the Net Operating Income and divide that by the purchase price of the property.  For example let’s say that your (NOI) is $40,000.  Your property purchase price is $325,000.  Your capitalization rate is around 12%.

 You can also do a gross rent multiplier analysis as well.  You reverse the capitalization rate figures.  Price is divided by potential rental income.   Price $325,000 divided by $40,000 equals  6.125

There is no single best type  financial analysis method to determine your return on investments. Each analysis will be determined by your choice of investment and your overall investment goals.