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No Photos 13th Jan 2017
ETFs - Automatic Income Method - Fundamental analysis may be the study of financial data for example earnings, dividends and cash flow, which influence the pricing of securities. I use fundamental analysis to assist select securities for future price appreciation. Over the years I have tried personally many means of measuring a company’s rate of growth so that they can predict its stock’s future price performance. I used methods such as earnings growth and return on equity. I have found that these methods are not always reliable or predictive.Earning GrowthFor instance, corporate net earnings are susceptible to vague bookkeeping practices for example depreciation, cash flow, inventory adjustment and reserves. These are subject to interpretation by accountants. Today more than ever, corporations are under increasing pressure to beat analyst’s earnings estimates which leads to more aggressive accounting interpretations. Some corporations take special “one time” write-offs on their own balance sheet for such things as failed mergers or acquisitions, restructuring, unprofitable divisions, failed product development, etc. Many times these write-offs are not reflected as a drag on earnings growth but instead appear like a footnote on a financial report. These “one time” write-offs occur with more frequency than you might expect. Many firms that make up the Dow Jones Industrial Average took such write-offs.Return on EquityOne other popular indicator, which I have found is not necessarily predictive of stock price appreciation, is return on equity (ROE). Conventional wisdom correlates a higher return on equity with successful corporate management that is maximizing shareholder value (the higher the ROE the greater).Which company is much more successful?Coca-Cola (KO) having a Return on Equity of 46% orMerrill Lynch (MER) with a Return on Equity of 18%

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