There are two main methods for doing analysis and research before investing in the stock market: technical analysis and fundamental analysis. In this article, we are going to discuss fundamental stock analysis in detail.
The fundamental analysis is the most rewarding analysis in the field of the stock market. During the fundamental analysis, you can determine the security with the help of the financial, qualitative, economic, and quantitative factors to find the intrinsic value. These macroeconomic and microeconomic factors can affect the security value. The main objective while doing the fundamental analysis is to evaluate the intrinsic value of the security. After that, compare that value with the present stock price of the security. It will help to determine whether a security is undervalued or overvalued. You should read the stock market reports to stay updated with the stock market.
Fundamental Vs. Technical Analysis
The technical analysis utilizes the past stock data to predict the future price of the stocks. On the other hand, the fundamental analysis considers the economic and financial factors that affect the business. Let’s find the details of fundamental and technical analysis and how they are different. The stock market today graph will help you to determine the present values of the stocks and make the analysis easier.
The first step towards technical analysis needs charts. On the other hand, the fundamental analysis needs the company’s financial statement.
During the fundamental analysis, you need to find the company’s intrinsic value by paying attention to the income statement, cash flow statement, and balance sheet. The intrinsic value of the stock can be easily determined by subtracting the value of the future project cash flow from the total present value. If the stock value is below the intrinsic value of the company, then you should invest in these stocks. On the other hand, the technical analysts believe that the price of the stock shows everything that has affected or could affect the business.
In fundamental analysis, the time horizon is usually long-term. On the other hand, the short-term approach is used in technical analysis. As per the fundamental analysis approach, you should wait for a long time before the intrinsic value is reflected in the stock market. During the technical analysis, the stock charts can be delimited in just a few weeks, days, or even minutes.
The technical analysts are different from the fundamental ones because both of them have different goals in their minds. The technical analysis demands to determine various medium to short-term trades for earning profits. On the other hand, fundamental analysis demands long-term investments for earning good profit.
Fundamental Analysis of Stocks:
It is imperative to understand the company where you want to invest. You will get a detailed insight by doing it. It will help you to determine whether the company is performing well or not and whether it is making the right decision for a good future. This analysis will help you to make the decision whether you should buy or sell stocks. You should visit the website of the company and know more about the company, promoters, managers, its products, services, and anything related.
Study Financial Reports
Once you know the company well, the next step is to start analyzing its financial reports like profit loss statement, balance sheet, operating cost, expense, total gain, etc. Once you have evaluated the compounded annual growth rate, then determine how it is grown. If the net profit is growth for the last five years, then it indicates positive growth of the company.
Check The Debt
Debt is also an important factor that needs to be considered. Heavy debt can bring down the performance of the company. The security will not do well or help you to earn a profit if it has a huge debt. It is recommended that you avoid huge debt. You should always try to find the company whose debt: equity of less than 1.
Find Company’s Competitors
Before choosing any company for invest in, you should find the competitors of that company. You should try to find a company which is doing better than other companies. When choosing any company, you should pay attention to their future prospects, new plants, etc.
Analyze Future Prospects
The fundamental analysis is quite effective when you want to invest for the long term. You should invest in those companies whose products will be useful for more than 15 to 25 years.
You should not invest in the company and just forget about it. It is really important to stay updated and make sure that you have invested in the right place. It is imperative to stay updated on its financial performance. You should sell the security if you think there is any problem in the company. With the help of stock market news, you can stay updated with the present values of stocks.