What is Fundamental Analysis?

Fundamental analysis is a method of analysis that attempts to predict the intrinsic value of an investment. It takes into account various factors (such as economic, political, environmental factors) and elements that influence the stock market.

Fundamental analysis includes: economic analysis, industry analysis, and company analysis. Fundamental analysts study the company's financial statements as well as analyze the overall economy and industry conditions to determine the value of a stock. They focus on financial ratios and numbers such as the return on equity, earnings per share, price/earnings to growth ratio, price to earnings ratio, debts, sales, earnings, growth potential, assets, cash flow forecasts, and so on. Fundamental analysis also include the study of other aspect such as politics, social attitudes, economic indicators like inflation, GDP, unemployment and more.

The main benefit of using Fundamental Analysis is that it helps investors identify long-term investment opportunities, but too many macroeconomic indicators may confuse beginner investors.

* Next: Technical vs Fundamental Analysis of Stocks
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