Fundamental Analysis of Stocks


To understand fundamental analysis, you need to know the difference between price and value. Price is the amount of money that you pay for a stock. On the other hand, the value is the intrinsic value that you get in return. The purpose of fundamental analysis is to find cheaper companies with higher intrinsic value and higher growth potential in the future. Furthermore, you need to analyze the data for the current situation of the company and predict its future status. Over time, you develop a strategy for your long-term investments.


Top-down approach (macro to micro)

It starts with understanding the industry as a whole and then moving to understand the company itself in more detail. At the global levels, global competition and demand for your product or service are important. At the domestic levels, market size, market share, competition, new emerging technologies, etc. are the key parameters. At the macro levels, inflation, liquidity, exchange rates, return on investment, and central bank data are all important in fundamental analysis.


Bottom-up approach (micro to macro)

It starts with the company data, including the financial statements, supplies, raw materials, customers, products or services, and resources. This approach scrutinizes the cash flow, balance sheet, debt, profit margin, liquidity, and investment leverage of the company. The current financial statement of a company can be used to project and predict its future financial status.

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