Fundamental Analysis

Fundamental analysis is the approach using which, we measure a stock’s intrinsic value, by examining related economic and financial factors.

There are two major factors:

1. Macroeconomic factors such as the state of the economy and industry conditions
2. Microeconomic factors like the effectiveness of the company’s management

The analyst aims to arrive at a value that can be compared with a stock’s current price in order to see whether the stock is undervalued or overvalued.

This method of stock analysis is remarkably different to technical analysis, which forecasts the direction of prices through an analysis of historical market data such as price and volume.

• Fundamental analysis is a method of determining a stock’s real value.
• Fundamental analysts search for stocks that are currently trading at prices that are higher or lower than their real value.
• If the real value is higher than the market price, the stock is deemed to be undervalued and a buy recommendation is given.

There are two ways in which the fundamental analysis can be categorized:

1. Quantitative : This analysis depends on numbers. They are the measurable characteristics of a Company. Financial statements such as revenue, profit, assets, are analysed to arrive at a fair value, also referred to as intrinsic value.
2. Qualitative: These fundamentals are less tangible. They consist of facts other than numbers. They can be related to the Company’s management, key decisions, pending M&As, patents, the brand value, vision of the Company, etc. Basically, non- number factors that can affect a Company’s value.