What is Fundamental Analysis?

Fundamental analysis is the process of determining a security’s “true value”. It involves evaluating a company’s financial performance and business model by studying the company’s fundamentals. As per general market understanding, some common areas assessed are:

• Revenue and profit growth
• Earnings per share (EPS)
• Profit margins
• Debt and cash flows
• Return ratios such as ROE
• Management and business model
• Industry and competitive position
• Valuation ratios such as P/E and P/B

How To Do Fundamental Analysis of a Stock?

An investor may begin by studying the company’s financial statements and business model. Next, they can examine:

• Revenue and earnings trends
• Debt levels
• Cash flows, 
• Profitability ratios, and
• Valuation. 

To gain additional context, a comparison of these measures with the company’s historical performance and industry peers can also be done. However, note that fundamental analysis does not guarantee a particular future stock price. It only provides a framework for assessing the company’s financial and business characteristics.

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