Fundamental Analysis Definition
Fundamental analysis is a method of evaluating the total or single share value (which is later can be multiplied by the total number of shares to find out the total value) of a company whereas Technical Analysis is a method of evaluating historical price movements. The value is known as intrinsic value. In fundamental analysis, the analysts use the real fundamental information of the company such as income statement, balance sheet, etc. Also, different economic values are used in fundamental analysis. Other three types of business analysis tools are SWOT ANALYSIS, PESTLE, & Heptalysis which are important for small business startups. These can be applied to online business websites & blogs as well.
Like I said, in fundamental analysis, company specific information and macroeconomic information are taken to analyze the company’s intrinsic value.
Who do the fundamental analysis?
A fundamental analyst maybe has a degree from financial background does fundamental analysis. Renowned degrees are Chartered Financial Analysis, Masters in Business Administration, or did fundamental courses from any reputed institutions.
The financial calculators are the most important tools for a financial managers or analysts. Financial calculators offer a great help to problem solving. Here Richard Andrew talks about financial calculators in his post on best financial calculators.
What is the goal of fundamental analysis?
To measure a value of a company’s share is the main goal of fundamental analysis. For example, financial ratio analysis helps to do evaluate the financial position of a company. Fundamental analysis finds out the possible reasons for mergers and acquisitions.
How do you apply fundamental analysis or the value you found in the fundamental analysis?
When you consider different variable and factors, and do the analysis, you end up with a value. That value is called the intrinsic value. You compare that value with the market price of the specific company.
Example of Fundamental Analysis
For example, a company named XYZ has an intrinsic value of 20 dollars per share. It values a stock considering the financial data of the company. It can be used for any kinds of securities.
A stock of a company is valued looking at some well-known factors such as profit margin, revenues, return on equity, return on asset, and other ratios. Bonds are valued considering economic factors such as interest rates, inflation rate, the overall performance of an economy. Few of the famous fundamental investors are Warren Buffet, and Tom Williams who are called the investment leaders of the history.
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