Introduction Fundamental Analysis
INTRODUCTION FUNDAMENTAL ANALYSIS
Fundamental analysis involves examining the economic, financial and other qualitative and quantitative factors related to a security in order to determine its intrinsic value. It attempts to study everything that can affect the security’s value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies).
Fundamental analysis, which is also known as quantitative analysis, involves delving into a company’s financial statements (such as profit and loss account and balance sheet) in order to study various financial indicators (such as revenues, earnings, liabilities, expenses, and assets). Such analysis is usually carried out by analysts, brokers and savvy investors.
Many analysts and investors focus on a single number – net income (or earnings) – to evaluate performance. When investors attempt to forecast the market value of firm, they frequently rely on earnings. Many institutional investors, analysts and regulators believe earnings are not as relevant as they once were. Due to nonrecurring events, disparities in measuring risk and management ability to disguise fundamental earnings problems, other measures beyond net income can assist in predicting future firm earnings.
Two approaches of fundamental analysis: * The top-down investor starts his or her analysis with global economics, including both international and national economic indicators, such as GDP growth rates, inflation, interest rates, exchange rates, productivity, and energy prices. He or she narrows his or her search down to regional/industry analysis of total sales, price levels, the effects of competing products, foreign competition, and entry or exit from the industry. Only then does he or she narrow his or her search to the best business in that area. * The bottom-up investor starts with specific businesses, regardless of their
Fundamental analysis involves examining the economic, financial and other qualitative and quantitative factors related to a security in order to determine its intrinsic value. It attempts to study everything that can affect the security’s value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies).
Fundamental analysis, which is also known as quantitative analysis, involves delving into a company’s financial statements (such as profit and loss account and balance sheet) in order to study various financial indicators (such as revenues, earnings, liabilities, expenses, and assets). Such analysis is usually carried out by analysts, brokers and savvy investors.
Many analysts and investors focus on a single number – net income (or earnings) – to evaluate performance. When investors attempt to forecast the market value of firm, they frequently rely on earnings. Many institutional investors, analysts and regulators believe earnings are not as relevant as they once were. Due to nonrecurring events, disparities in measuring risk and management ability to disguise fundamental earnings problems, other measures beyond net income can assist in predicting future firm earnings.
Two approaches of fundamental analysis: * The top-down investor starts his or her analysis with global economics, including both international and national economic indicators, such as GDP growth rates, inflation, interest rates, exchange rates, productivity, and energy prices. He or she narrows his or her search down to regional/industry analysis of total sales, price levels, the effects of competing products, foreign competition, and entry or exit from the industry. Only then does he or she narrow his or her search to the best business in that area. * The bottom-up investor starts with specific businesses, regardless of their