📘 What is Fundamental Analysis?
fundamental analysis is a method used to evaluate the intrinsic value of a stock or company by analyzing its financials, industry position, management quality, and macroeconomic factors. The goal is to determine whether the stock is undervalued, fairly valued, or overvalued.
🎯 Purpose of Fundamental
Analysis
To answer:
"Is this stock worth investing in based on its
actual business performance and value?"
🧱 Key Components of
Fundamental Analysis
1. Quantitative Analysis (Numbers & Financials)
🔹 Income Statement –
Revenue, net profit, expenses
🔹 Balance Sheet – Assets,
liabilities, equity
🔹 Cash Flow Statement –
Cash inflow/outflow from operations, investing, and financing
Key Ratios:
|
Metric |
What It Tells You |
|
EPS (Earnings Per Share) |
Profitability per share |
|
P/E Ratio |
Valuation compared to earnings |
|
ROE/ROCE |
Efficiency in generating returns |
|
Debt-to-Equity |
Financial leverage |
|
Free Cash Flow |
Cash left after expenses |
2. Qualitative Analysis (Business Quality)
🔸 Business model – How
the company makes money
🔸 Moat – Competitive
advantage (brand, IP, scale, etc.)
🔸 Management –
Experience, integrity, track record
🔸 Corporate Governance –
Ethics, transparency, board structure
3. Industry & Macroeconomic Analysis
📌 Industry growth rate
📌 Competition &
market share
📌 Government
policies/regulations
📌 Interest rates,
inflation, GDP, etc.
📈 Types of Fundamental
Analysis
|
Type |
Focus |
|
Top-Down |
Start with macro (economy) → sector → company |
|
Bottom-Up |
Start with company → evaluate independent of economy |
✅ Final Output of Fundamental
Analysis:
A stock's intrinsic value
If intrinsic value > market price → Undervalued
(Buy)
If intrinsic value < market price → Overvalued
(Avoid/Sell)
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