Meaning of Fundamental Analysis
Fundamental analysis is the analysis of a company in which the investor sees the future profitability and growth of the company based on the environment in which it is functioning and its financial performance. The man aim of fundamental analysis of the stock is to find the intrinsic value i.e. the real value of the stock in comparison to the price of stock traded on the exchange.
The fundamental analysis of a company can be divided into two parts. They are:
- Qualitative Analysis
- Quantitative Analysis
Qualitative analysis involves an understanding of the financial performance of the company with the numerical data available. By analysing the data, comparisons can be drawn with various other similar businesses and performance can be evaluated. The qualitative analysis comprises of the following.
- Ratio Analysis:
- Projected Earning Analysis:
- Other Numerical Data:
Quantitative analysis involves analysis of a company other than in terms of numbers. The analysis is more subjective. The judgement of in case of quantitative analysis can vary from one investor to another. The following aspects form part of the quantitative analysis.
- Type of Business
- Assets and Liabilities
- Corporate Governance
By doing the above analysis, one can evaluate the fundamentals of the company. Based on such analysis the investor can take a well-informed decisions regarding his investments.