Fundamental Analysis

Reviewed by Bhavana | Updated on Jul 18, 2022



Fundamental analysis is a mechanism which is used to determine a stocks actual or """"fair market"""" value. Fundamental analysts look for a stock which is currently trading at a price that is either higher or lower when compared to its real value.

During fundamental analysis, a business will be looked at from the most basic financial level. This kind of analysis will help in examining a companys key ratios for determining its financial health. In simple words, fundamental analysis is examining a business, its history, the economy, and the market in order to put together an investment decision concerning a particular stock.

Understanding Fundamental Analysis

Fundamental analysis helps in evaluating a stocks intrinsic value in order to find out its long-term investing opportunities. This analysis will also consider the overall condition of the economy and elements such as production, interest rates, employment, earnings, housing, GDP, management, and manufacturing.

Fundamental analysis can be executed with the help of two primary approaches- bottom up analysis and top down analysis. Fundamental analysis is done on data concerning the past and present; however, the aim is to make financial forecasts. Fundamental analysts make use of either the bottom-up or the top-down analysis. In certain scenarios, both methods of analysis could be used.

Highlights of Fundamental Analysis:

  1. Fundamental analysts examine all factors which can have an impact on the securitys value. This includes both macroeconomic and microeconomic factors.
  2. When the fair market value is greater than the market price, a stock will be considered as undervalued. A buy recommendation will be given.
  3. Fundamental analysis helps in evaluating a companys stock and foresee its potential price evolution.
  4. The types of fundamental analysis are classified into two types - quantitative and qualitative.

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