What is fundamental analysis

Part 1

What is fundamental analysis?

Fundamental analysis is the foundation of solid investing. It helps you determine the underlying health of a company by examining the business’ core numbers: its income statements, its earnings releases, its balance sheet, and other indicators of economic health. From these “fundamentals” investors evaluate if a stock is under- or overvalued.

Fundamental analysis begins with an individual stock, but it also extends to that company’s larger context. It explores questions like these: 

Is the company competitive within its industry? 

Is that industry growing or shrinking, compared to other sectors?

Shares of companies with strong fundamentals will tend to go up over time, while fundamentally weak companies will see their stock prices fall. This makes fundamental analysis especially valuable to long-term investor

Why conduct fundamental analysis?

• Is the company making a profit consistently? (While this is naturally the most important question for investors, it’s important to consider the answer in a bigger context. A single profitable quarter for a new company might be a fluke. In the same regard, a drop in profitability for an established blue-chip company might just be a temporary setback.)

• Is that profit growing or declining over time?

• Is the company holding its own relative to the competition? Is it a leader in its sector? Is that sector growing or declining in importance to the overall economy?

• Can the company pay its bills adequately? If you were to dismantle the company’s operations today, what would be the intrinsic value of its assets versus the value of its debts?

Fundamental analysis helps you determine if a company is a good or poor investment choice. Imagine you’re a venture capitalist or a bank, who must decide if that company is worthy of a loan or equity investment. How can you evaluate whether this particular company deserves your invest-able capital?

Fundamental analysts consider the following in making their decision whether to invest or not 

Part 2

What information do you need to perform fundamental analysis?

The biggest part of fundamental analysis involves analysing the financial statements of company,   In other word you can say it is a quantitative analysis.  This involves looking at Revenue, Expenses, Assets  , Liabilities and all the other financial aspects of a company. Fundamental analysts look at this information to gain insight on a company's past  performance and  forecast future performance.

All the public listed companies in Indian stock exchange  are required to file statements of financial condition on a regular basis. These include  quarterly statement, and an annual statement. Each statement follows a prescribed format to include certain basic information.

Public listed companies are also subject to audits by government agencies that oversee their given industry. Those audits may be either scheduled or random events. The results of a regulatory audit may also be published--interesting reading for a would-be investor.

The Quarter 2 Quarter result  are good places to start your fundamental research, but you’ll likely want to dig deeper into the specifics information For that you’ll need to understand three interrelated types of statements which are very important

 The balance sheet

 The income statement

  cash flow statement.

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