What is Fundamental Analysis?
Advertisement ‘); //–> Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock’s current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Fu
Fundamental analysis is a type of stock selection discipline. If you conduct thorough research of a company’s accounting statements before deciding to purchase stock in the company for investment purposes, you are said to be following a fundamental analysis approach to investing. Another very common approach is technical analysis, which is almost the opposite type of approach. A fundamental analysis approach attempts to determine whether the company is financially sound and will continue to earn money. A technical analysis approach to investing is almost entirely concerned with how the price of the stock has performed over time and attempts to predict what it will do in the future based on this. Sometimes, the two approaches are combined, with a fundamental analysis approach used to select the stocks and a technical analysis approach used to time the investment in the stocks of interest. When performing a fundamental analysis of the stock of interest, one tries to determine whether the
