What is "Fundamental analysis" ?

The whole idea of "Fundamental analysis" revolves around the concept of determining “Intrinsic value” of a security so that we can understand whether it is "Over-valued, Fairly-valued or Under-valued".

Price is what you pay and value is what you get — WARREN BUFFET

We all know the price of something that we are "Buying or Selling" but how do we determine its value is what decides our investment’s future.

Fundamental analysis is mainly divided into 3 parts namely :

• Economy analysis based on Macro-economic factors such as State of the economy, Political system, Demography, Government spending, Taxes, Wages, Import & Export, Trade Deficit/ Surplus, Fiscal Deficit/ Surplus, Foreign exchange currency, Oil price, Fiscal policy, Monetary policy, Inflation rate, Interest rate, Money supply, Quantative easing, Liquidity, GDP & Market capitalization/ GDP.
• Industry analysis based on which Stage the industry is in its life-cycle, Demand & Supply statistics, Competition within the industry, External threats for industry, Future prospects of industry, Credit system and Technological changes.

Broad factor [Political factors, Economic forces, Social impact & Technological aspect].

4 engines of the economy [Consumption, Export, Investment & Government].

SWOT Analysis [Strengths, Weaknesses, Threats & Opportunities].

• Company analysis based on Balance sheet (Share capital, Reserves & surplus, Current liabilities, Other liabilities, Current assets, Fixed assets, Other assets & Contingent liabilities), based on Income statement (Sales, Other income, Total expenditure, Earning before interest and tax, Interest, Tax & Net profit) and Net cash-flow from (Operating, Financing & Investing activities).

Ratio analysis :

Face value per share, Dividend per share, Dividend yield, Earning per share, Earning yield, Book value per share, Gross profit margin, Operating profit margin, Net profit margin, Return on net-worth/ equity, Return on assets, Return on capital employed, Current ratio, Quick ratio, Working capital, Debt to equity, interest coverage, Asset turnover, Inventory turnover, Sales growth, Net profit growth, Price to earnings, Price to book value, Price to sales, EV/ EBITDA, Price earnings growth.

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