Fundamental Analysis: When you investing in the stock market, One things is always comes to your mind that how we can predict which stock is going up and down in shorter or longer period.
IF this happened with you then you comes into right place, In this article we will discuss about one Fundamental Analysisthat will helpful for your investing journey.
What is Fundamental Analysis?
Fundamental analysis is a method of evaluating a company’s financial health and future growth by analyzing some key data points such as revenue, earnings, liabilities and assets.
Before you start analyzing stocks, it’s important to have a basic understanding of fundamental analysis. This method evaluating a company’s financial data to assess its potential for future growth and its profitability.
Final goal is to determine whether a stock is overvalued, based on factors such as the company’s revenue, earnings assets and liabilities.
Steps Required for Fundamental Analysis
1. Define Company’s business and industry
First step in Fundamental analysis is to understand the company’s business and the industry they operates in. This includes the company’s products or services, targeted customers, competitors, and the overall company profile.
2. Review the Financial Statements
In this steps to have to learn and analyze company’s financial statements. This includes the income statements, balance sheet, and cash flow statements. This information help to make your decision solid.
Below you will find financial statement of IndusInd Bank. Take a look below to read some important key data points.
You can get financial statement by click this link- https://www.indusind.com/in/en/investors/investor-landing.html
Fundamentals
In this section you will find very important terms, which will help to analyze Fundamental analysis of any stock.
These terms are Market Cap, Return on equity(ROE), Price to Earning Ratio or Price to Earning Multiple(P/E Ratio), Face value and Book value Etc.
Financials
In the financial report you can find company’s Revenue , profit and Net worth. You can find these data on quarterly basis and yearly basis.
Income Statement
Income statement you will find company’s Revenue, Expenses, EBITDA (Earning before interest, taxes, depreciation, and amortization), OPM(Operating Profit Margin) and NPM(Net Profit Margin) Etc.
Balance Sheet
In balance sheet, you will find Total Assets of company (Current and Non Current), Total Liabilities
Cash Flow
In this section you can find company Net Cash, Operating Activities Cash, Investing Activities Cash and Cash from Financial Activities Etc.
3. Analyzing key Financial Ratios.
When you analyze any stock you find some key Ratios like EPS, DPS, Price to Earning Ratio or Price to Earning Multiple(P/E Ratio)and ROEEtc.
4. Evaluating Company’s Management
- “Honesty is a very expensive gift, Don’t expect it from cheap people.” – By Warren Buffett.
- “Price is what you pay. Value is what you get.” – By Warren Buffett.
When it comes analyze good stock to buy then, you have to analyze company’s management team also.
Because a good management can grow your investment while a bad management can destroy your hard earned money very soon.
So you have to look team profile before you investing you money to any particular stock or company.
5. Knowing Company’s Business Sector Ranking
When you investing your money into any particular stock, one factor which also help to make your decision is company’s business sector ranking. It will define that how many companies lead that business or sector. This will help to grow you invested money fast.
6. Updated with latest Changes and News
In very high competitive world, there has been lots of changes and up and down comes into the business. There are many subsidies announcing by the government.
You will always kept informed with these changes. This is the way to track your investment and make decision whether your investment is for Long term or Short term.
Importance and Benefits of Fundamental Analysis
When it comes to importance of doing fundamental analysis of any company, it will gives many answers which arises on mind like-
- Is it the right time to invest in any particular company?
- Is company’s share price over valued or under valued?
- Is it beneficial to hold for long term?
- What is the future plans of company?
When you analyze Fundamentals of any stock you will get long-term trends of the stock. This will help you to stay invest in the particular stock.
Fundamental Analysis V/S Technical Analysis
Fundamental Analysis and Technical Analysis are the two methods used to analyze investments in financial markets.
FA looks at financial and economic data to determine it the stock is undervalued or overvalued. It’s a long-term approach that considers earnings, revenue growth, and industry trends.
TA, on the other hand, analyzes historical price and volume data to identify patterns and trends that can inform future price movements.
It’s a short- term approach that uses tools like charts and technical indicators(moving averages, Bollinger bands and Fibonacci retracements Etc.).
Both FA and TA are valuable, and many investors use both approaches. FA provides a long- term perspective, while TA can help identify short- term buying and selling opportunities.
The choice of which approach to use depends on an investor’s goals, risk tolerance, and time horizon.
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