Fundamental Analysis - Basics by Raj Vora

Every month we try and bring out something new on the blog. 

• We started our blog in December 2016. 
• We started to share the trades that we enter in from the month of January 2017. 
• And this month, February 2017, we have decided to initiate spreading knowledge on Fundamental Analysis.

We will try to come up with regular post on the subject "Fundamental Analysis" starting from as basics to advanced versions. Before proceeding, let us first understand what Fundamental Analysis is.

                  

Wikipedia defines Fundamental Analysis as 

"Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health;[1] and its competitors and markets."

Fundamental Analysis is the kind of analysing a company on the parameter of it's business and financials. By this we mean, the study on following subjects but not limited to is carried out to determine the strenght in the company:

What is kind of business the company is into?

• How progressive the business is?
• How the products / services of the company are performing across previous quarters and years?
• How is the company's performance across it's peers in the industry?
• How competitive company's product and services are? Is it replaceable with other product / services easily?
• How does the company manage it's employees, creditors, debtors and shareholders?
• Is company prepared to handle the sudden increase / decrease in demand of it's product / services?
• Are company's clients distributed among different regions / category of client or is it concentrated in one region / category of client?
• How responsible the management of the company is? 
• What are the future prospects of the company's products and services?

 

Fundamentals analysis is used to determine the intrinsic value of a company by studying their income statement and balance sheet along with its cash flow statement.

• Income statement tells us about the profitability of a company. How much profits a company is making and what are it's margins. It can be identified by looking at the income statement.
• Balance sheet tells us about the assets and liabilities of a company.
• Cash flow tells us how much cash a company has and how effectively company has utilised it

If you are a long term investor, analysing a company on the fundamental basis is very essential to retrieve the maximum profits from the markets. It is very important to keep the noises at bay and concentrate on the facts in order to take the decision of creating your wealth.

We will study more on fundamental analysis and into greater detail in the coming posts. So stay tuned.

Author: Raj Vora. Raj is studying BBA currently and is very passionate to learn different aspects of Stock Markets. He prefer to tag all his post as #ow. 
 
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