One of the pillars of investing is fundamental analysis, which provides you with instruments to assess the relative values of various assets. Discover the basic analytical tools here, including PE ratios and SWOT analysis.

Fundamental analysts study anything that can affect the security's value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company's management.

Fundamental Analysis


  • The process of ascertaining the true or "fair market" value of a stock is known as fundamental analysis.
  • Stocks that are presently trading at prices higher or lower than their true worth are sought after by fundamental analysts.
  • A buy recommendation is made for the stock if it is considered to be cheap and its fair market value exceeds the current price.
  • The stock is considered overpriced if the fair market value is less than the market price; if the stock is held, the advise may be to sell rather than to acquire.
  • Technical analysts, on the other hand, like to use the stock's previous price movements to forecast short-term future developments.

  • Understanding Fundamental Analysis:

    Fundamental analysis is usually done from a macro to micro perspective to identify securities that are not correctly priced by the market.

  • The overall state of the economy
  • The strength of the specific industry
  • The financial performance of the company issuing the stock

  • Fundamental analysis assesses an investment's worth by using readily accessible financial data. Financial statements, including quarterly and yearly reports and filings, such as the 10-Q (quarterly) or 10-K (annual), contain the data. Because public corporations are required to file the 8-K report every time a reportable event happens, such as an acquisition or a change in upper-level management, the report is also useful.


    The majority of public and numerous private firms post their annual reports, which emphasize the choices taken and accomplishments reached in terms of finances, on their websites within the investor relations area.

    Intrinsic Value:

    Intrinsic value is a way of describing the perceived or true value of an asset. This is not always identical to the current market price because assets can be over- or undervalued. Intrinsic value is a common part of fundamental analysis, which investors use to assess stocks, as well being used in options pricing.

    Different Types of Fundamental Analysis:

  • Qualitative Analysis:

  • A study that involves brand value, management decisions, the financial performance of the company over a given period, and other similar factors.

  • Quantitative Analysis:

  • A analysis that is purely number-based and considers the company’s financial statements and concludes the share price from the observations.

    Basics of Fundamental Analysis

  • Company's structure and Revenue
  • Company's profits over the year
  • Revenue growth over the year
  • Company Debt's
  • Corporate Goverance
  • Return of Turnover

  • How to do Fundamental Analysis in a Stock:

  • Understand the company, its operations, business model, etc.
  • Use the financial ratios for initial screening.
  • Closely study the Financial reports of the company.
  • Find the company’s competitors/rivals and study them.
  • Check the company’s debt and compare it with rivals.
  • Analyze the company’s prospects.

  • Frequently Asked Questions

    There is no one answer to this question as different companies will naturally have different PE ratios. For example, mature companies in defensive stock sectors generally have low PE ratios, while early stage companies or companies in fast-growing sectors often have very high PE ratios. To make the most of PE ratio as a metric of company value, make sure to compare PE ratios to similar companies in similar sectors, as well as to the same company at different periods in the past to get better comparisons.

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    The full form of ROCE is Return on Capital Employed. Return on Capital Employed or ROCE shows how efficiently a firm generates profit from the capital utilised. It is a profitability ratio that determines how efficiently a company uses its capital to generate profits.

    Fundamental analysis allows you to see what the market value for a company should be. Many investors only look at the price a stock is currently trading at and what it has traded at instead of analyzing what lies behind the stock. A stock is issued by a company, so its overall performance is related to the financial performance of the company.

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    Also referred to as the fund size, it refers to the overall value of the capital held by the mutual fund. This includes all the assets invested and the amount of cash possessed by the mutual fund. A fund manager uses this capital to make investment decisions to generate profit for the investor.

    Dividend yield is a ratio that shows you how much income you earn in dividend payouts per year for every dollar invested in a stock, a mutual fund or an exchange-traded fund (ETF).

    The price-to-earnings ratio is the ratio for valuing a company that measures its current share price relative to its earnings per share (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

    The book value literally means the value of a business according to its books or accounts, as reflected on its financial statements. Theoretically, it is what investors would get if they sold all the company's assets and paid all its debts and obligations.

    A financial measure called return on capital employed (ROCE) may be used to evaluate the profitability and capital efficiency of a business. Put another way, this ratio may be used to determine how successfully a business is using its capital to generate profits. When evaluating a firm for investment, financial managers, stakeholders, and possible investors may employ a number of profitability ratios, including ROCE.

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