Fundamental analysis is a method used to evaluate the intrinsic value of a company or stock by examining its financial health, business performance, and broader economic factors. It involves studying a company’s financial statements such as the income statement, balance sheet, and cash flow statement, along with key financial ratios. The goal is to assess whether a stock is overvalued, undervalued, or fairly priced compared to its true worth.
This analysis also looks beyond company-specific data, considering macroeconomic elements like interest rates, inflation, and industry trends to understand the company’s prospects. Fundamental analysts use this approach to make informed investment decisions based on the company’s long-term growth potential and financial stability, rather than just short-term market price movements.
In summary, fundamental analysis helps investors identify potentially profitable investments by measuring the real value of a company through a thorough study of financial and economic indicators, guiding buy, hold, or sell decisions.