Fundamental analysis
A method of evaluating securities by analyzing economic and financial factors that may influence their value, such as earnings, assets, and liabilities.
Fundamental analysis is a method of evaluating financial assets by examining the underlying factors that can influence their value. It involves analyzing a company's financial statements, industry dynamics, macroeconomic indicators, management quality, and other relevant information to determine the intrinsic value of an asset. Fundamental analysts seek to understand the economic, industry, and company-specific factors that can impact the financial performance and prospects of a company or asset. They examine financial ratios, such as earnings per share (EPS), price-to-earnings (P/E) ratio, and return on equity (ROE), to assess the financial health and profitability of a company. In addition to financial data, fundamental analysts consider qualitative factors such as competitive advantages, market positioning, regulatory environment, and management team expertise. They also analyze macroeconomic indicators, such as interest rates, inflation, and GDP growth, to understand broader market trends and potential risks. The goal of fundamental analysis is to estimate the intrinsic value of an asset and compare it to its current market price. If the intrinsic value is higher than the market price, the asset may be considered undervalued and potentially a good investment opportunity. Conversely, if the intrinsic value is lower than the market price, the asset may be considered overvalued. Fundamental analysis is commonly used by long-term investors who take a buy-and-hold approach to investing. It helps them make investment decisions based on the underlying fundamentals of a company or asset, rather than short-term market fluctuations. Critics of fundamental analysis argue that it is time-consuming and relies on subjective judgments. They contend that it may not always accurately predict short-term price movements and can be influenced by biases or incomplete information.