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Fundamental Analysis

Updated on March 13, 2023

Fundamental Analysis refers to the process of evaluating a company or business for arriving at its intrinsic value or ascertaining its financial health and future growth prospects.
It involves a study of the company, its core business, financial metrics, its competitors, various ratios, its standing with respect to the business or sector as a whole, along with similar other factors. The performance of a company and its stock price is dependent on micro as well as macroeconomic factors. Fundamental analysis involves the research and assessment of all such factors impacting the growth and performance of a company which is eventually reflected in its stock prices.

Fundamental Analysis explained

Investors who want to invest in a business for the long term generally follow the fundamental analysis approach for understanding the business from various perspectives.
Fundamental analysis concentrates on the underlying business and its performance. It involves a study of both qualitative factors like company’s goodwill, consumer behavior, demand, company brand value and quantitative factors like financial statements, quarterly performance, balance sheets, debt, cash flow, etc. A decision to invest is based on fundamental analysis which helps in establishing whether a security or stock is undervalued or overvalued as per its market price.