WHAT IS FUNDAMENTAL ANALYSIS
Investors use Fundamental Analysis to find the intrinsic value of a stock. The actual value value of the stock may not be reflected by the current price. It may get undervalued or overvalued. In order to identify the intrinsic value, fundamental analysis studies the health state of the company. This is achieved by considering several quantitative and qualitative factors like company’s profit margins, revenue, future growth potential, return on equity and other metrices. Using this method, we can find companies with fundamental strength that are suitable for long-term investment.
It helps you in investing by helping you determine the fair value. With this, you can analyze the performance and strength of any companies through major economic indicators and numbers. It will help you to understand if a stock is overvalued or undervalued. Through fundamental analysis, you can evaluate the business model of a company and its working.
There are certain tools used in fundamental analysis. These focus on earnings, growth and value in the market. Know more about Tools of Fundamental Analysis.
FUNDAMENTAL ANALYSIS V/S TECHNICAL ANALYSIS
Investors use both of these to make various decisions regarding investments. Even so, the outlook is entirely different.
- Determines stock value through considering financial as well as economic factors.
- Approach is long-term.
- Mainly uses financial records for analyzing.
- Includes new information.
- Uses past stock movement to foresee future prices.
- Approach is short-term.
- Mainly uses price charts for analyzing.
- Focus is mainly on historical performance.
TYPES OF FUNDAMENTAL ANALYSIS
Qualitative Fundamental Analysis:
This uses the information related to the company that can’t be demonstrated in numbers. This include information about performance of the management, industry, competition, business, corporate governance, etc.
Every investors can take advantage from fundamental analysis, if used wisely. It can help you find the performance of any organization and thus helping in making best decisions in investment.