What is fundamental analysis?
Fundamental analysis is the study of a company’s financial statements in order to assess its intrinsic value. This type of analysis can be used to determine whether a stock is undervalued or overvalued. Fundamental analysts also look at economic and political factors that could impact a company’s performance.
The practice of valuing companies by looking at revenues and earnings and then analyzing the company’s management and the prospect for its products or services to be successful. Fundamental analysis also can be used to look at entire industries or commodities markets. Fundamental analysis of a company or commodity is in contrast to technical analysis, which looks only at price charts to form an opinion about the company’s or market’s direction. As applied to the economy, fundamental research involves analyzing economic statistics, such as unemployment.
Fundamental analysis, in accounting and finance, is the analysis of a business’s financial statements (usually to analyze the business’s assets, liabilities, and earnings); health; and competitors and markets. It also considers the overall state of the economy and factors including interest rates, production, earnings, employment, GDP, housing, manufacturing and management. There are two basic approaches that can be used: bottom up analysis and top down analysis. These terms are used to distinguish such analysis from other types of investment analysis, such as quantitative and technical.
Different types of fundamental analysis
There are several types of financial statements that can be analyzed, but the most important ones are the balance sheet, income statement, and cash flow statement. The balance sheet provides information on a company’s assets and liabilities, while the income statement shows how much revenue a company generates and what expenses it incurs. The cash flow statement tracks a company’s inflows and outflows of cash.
By looking at a company’s financial statements, fundamental analysts can get an idea of its financial health and its potential for future growth. This type of analysis takes time and effort, but it can be very rewarding for investors who are willing to do the work.