Fundamental Analysis

Fundamental analysis is a method for determining the intrinsic value of a security—such as a stock—by examining related economic, industry, and company data, most importantly the company's financial statements and broader economic conditions. The aim is to assess whether the security is undervalued, overvalued, or fairly valued compared to its current market price.

Analysts using fundamental analysis focus on key measures like revenue, earnings, assets, liabilities, and cash flows, as well as ratios such as earnings per share (EPS), return on equity (ROE), and debt-to-equity. They also consider economic indicators (GDP, interest rates, inflation), industry trends, a company’s business model, competitive position, management quality, and growth prospects. This approach is distinct from technical analysis, which studies historical price movements and trading patterns.

The ultimate goal of fundamental analysis is to make informed investment decisions by identifying securities that present a good value based on future growth potential or income generation, rather than relying solely on current market prices or short-term fluctuations.