What is Fundamental analysis

 

What is Fundamental Analysis?

Fundamental analysis is a method of assessing the intrinsic value of a stock. It combines financial statements, external influences, events, and industry trends. It is important to note that the intrinsic value or a fair value of a stock does not change overnight. Such analysis helps you identify key attributes of the company and analyze its actual worth, taking into account macro and microeconomic factors. 

Fundamental analysis uses three sets of data:

1. historical data to check how things were in the past
2. publicly known information about the company, including announcements made by the management and what others say about the company 
3. information that is not known publicly but is useful, i.e., how the leadership handles crises, situations, etc.

For a stock, fundamental analysis typically includes reviewing many elements related to stock prices, including:

• Performance of the overall industry the company participates in
• Domestic political environment
• Relevant trade agreements and external politics
• The company’s financial statements
• The company’s press releases
• News releases related to the company and its business
• Competitor analysis

What are the Different Types of Fundamental Analysis?

There are two main types of fundamental analysis –

1. Qualitative: a study that involves brand value, management decisions, the financial performance of the company over a given period, and other similar factors.
2. Quantitative: an analysis that is purely number-based and considers the company’s financial statements and concludes the share price from the observations.