Fundamental analysis is an investment method of assessing the value of a company based on its financial indicators. Investors using this method try to buy shares of companies that are priced below their real value. The goal of fundamental analysis is to find such companies that can be bought cheaply and then sold at a higher price.
What is fundamental analysis? Definition of the term
Fundamental analysis is an investment method of assessing the value of assets based on their future income and expenses. Investors using this method try to predict how changes in the market environment (e.g., interest rate, inflation) will affect the value of an asset. Fundamental analysis can be used to invest in stocks as well as other financial instruments, such as bonds or real estate.
Objectives of fundamental analysis
Fundamental analysis is one of the two main approaches to investing in financial markets. Its purpose is to assess the value of assets based on their future market valuation. Fundamental analysis is considered more reliable than technical analysis because it is based on historical and current data that is readily available to investors. Fundamental analysis is used by investors to assess the value of assets and help them make investment decisions. Investors use fundamental analysis to determine whether it will be profitable to acquire an asset or whether it is better to sell it.
Fundamental asset analysis aims to identify those assets that have the potential to increase or lose value in the future. Fundamental analysis consists of three main components: market research, financial research and economic evaluations. Market research involves analyzing current and historical market trends to determine what may affect future asset prices. Financial research involves evaluating company financial statements, such as the annual or quarterly report. The final element is an economic assessment of factors such as the unemployment rate or inflation that may affect asset prices.
Fundamental analysis – stages
Fundamental analysis is one of the methods of studying listed companies, which is based on the analysis of available financial information. Unlike technical analysis, which focuses on price charts, fundamental analysis allows investors to better understand a company and its market environment. Its purpose is to value the company’s shares and forecast their future direction.
There are several stages of fundamental analysis:
1. gathering information. The most important sources of information are the company’s annual and quarterly reports and data collected by its financial department. Investors can also gather information from other sources, such as the stock market, trade press and company websites.
2 Assessing the company’s financial situation. This analysis includes an assessment of all financial aspects of the company, such as its revenues, expenses, liabilities and assets. It allows investors to get a more complete picture of its operations and determine the potential for growth (or recession) in the future.
3 Forecast the future direction of this company’s stock market. Based on the information gathered and the assessment of the company’s financial situation, investors can now make a forecast of the future direction of its stock market price movement.