What is Fundamental Analysis

  • Fundamental analysis is more about judging the performance of a company to find out which company’s shares to invest your money in. You will analyze all the news and information that could possibly affect the price of the shares like economic, geopolitical, legal, financial, market news, etc. This is unlike technical analysis where you mainly rely on charts and indicators to decide when to trade.


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Past earnings can't guarantee anything we can't build the strategy based on that (heard this from one famous analyst on Hotforex webinar). After realizing this I start to use only non laggging indicators or fundamental analysis..
Fundamental analysis involves taking into account the economic position of a country which means inflation, trade balance, GDP and even Central Bank’s interest rates.
Fundamental analysis is one of the most used methods of stock analysis. With the help of fundamental analysis, you can evaluate the intrinsic value (i.e. the true value) of a stock. Fundamental analysis involves studying the financial health of a company along with its future outlook to determine the long term price of a stock. To do the fundamental analysis, you must know how to read the cash flow statement, profit and loss statement, balances sheet, financial ratios, etc.

Things to Look While Doing Fundamental Analysis

While doing the fundamental analysis you may look into the following factors;

Earnings Per Share (EPS)
Earnings per share represent the company’s profit assigned to each share of stock. The calculation of EPS is done by dividing the net income with the number of outstanding shares. EPS is the most commonly used ratio for fundamental analysis.
  • Price to Earnings Ratio (P/E)
PE ratio is another important tool for doing fundamental analysis. Using this ratio you can compare the current price of the company’s stock to it’s per share earnings.
  • Price to Sales Ratio (P/S)
Using the price to sales ratio, you can evaluate the price of a company’s stock price in comparison to its revenue.
  • Price to Book Ratio (P/B)
This ratio compares the stock’s book value with its market value. This fundamental tool can be used by dividing the recent closing price of the stock with the previous quarter’s book value per share.
  • Return on Capital Employed (ROCE)
Return on capital employed is a profitability ratio used for fundamental analysis of a company. By using this ratio the investor can measure the efficiency at which the company is generating profits with the capital employed by comparing the net operating profit to capital employed.
  • Dividend Payout Ratio
The dividend payout ratio compares the dividend paid to the stakeholders against the total net income of a company.
  • Dividend Yield
The dividend yield compares the yearly dividend with the share price. This fundamental analysis tool is expressed in the form of a percentage. You can arrive at this ratio by dividing the dividend payment per share in a single year with the value of a share.
  • Return On Equity
Return on equity expresses the return of a company on its net worth. It can be used for fundamental analysis by dividing the net income of the company with the shareholder's equity.
The above mentioned are some of the fundamental analysis tools that an investor may use before investing in stocks.
What is Fundamental Analysis

Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.

Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.

Its all about earnings. When you come to the bottom line, thats what investors want to know. How much money is the company making and how much is it going to make in the future.

Earnings are profits. It may be complicated to calculate, but thats what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.

When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.

While earnings are important, by themselves they dont tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.

Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.

Earnings per Share EPS
Price to Earnings Ratio P/E
Projected Earning Growth PEG
Price to Sales P/S
Price to Book P/B
Dividend Payout Ratio
Dividend Yield
Book Value
Return on Equity

No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.
Thank you for your valuable information, could you please elaborate the topic with implementation methods please.
Fundamentals include the basic qualitative and quantitative information that contributes to the financial or economic well-being and the subsequent financial valuation of a company, security or currency. Where qualitative information includes elements that cannot be directly measured such as management experience, the quantitative analysis uses mathematics and statistics to understand the asset and predict movement.
Fundamental analysis relies on these tools to give investors an idea of the financial health of a company and how the market values the stock ( Never Inlcude Techical Analysis )

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