What is Fundamental Analysis
Fundamental Analysis is the examination of the fundamentals of a company based on various quantitative and qualitative factors to attempt to derive its intrinsic value. By assessing the factors that affect a company's business and future prospects, fundamental analysis is conducted to help us form an opinion on the current business performance, financial position and cashflows of the company that we intend to invest in.
A large part of fundamental analysis involves the examination of the financial statements of the public listed company. Fundamental analysis utilises historical financial data and corporate information announced to the stock exchange such as revenue, profits, dividends, contracts secured, etc to forecast future financial performance. It also involves learning and understanding about macroeconomic factors, industry trends and performance and the competitive landscape that affects the company.
The key questions an investor asks are :
- Is the stock under or over-valued based on current market price?
- Is the stock worth buying at current price? What are the catalysts for business growth which will lead to an increase in the stock's market value?
Fundamental analysis attempts to form such opinions.