What is Fundamental Analysis?
Fundamental analysis is an investing term. If you know nothing about investing, it’s likely that you’ve never heard of fundamental analysis. Fundamental analysis is a type of stock analysis.
Would you just take a job without looking into it such as if it offers benefits, if you’re required to work over-time, what the working conditions are, or even how much it pays? Your jobs biggest or maybe even sole purpose is to make you money, but you want it to work well with your life so that you don’t end up quitting and having no money.
Stock investing is just the same as a job in that the purpose is to make money. You have to do your research or else you might not make any money. You need to look at stock investing as the same as getting a job.
The fundamentals of a corporation are top priority when looking into a stock, unless you are using technical analysis which mainly uses charts. First, you should look at the financial statements of a corporation. If you don’t have a degree in accounting or finance it’s likely you don’t know what financial statements are.
Financial statements are exactly what they sound like. They are the statements that describe the corporation’s financial whereabouts. These include the Balance Sheet, Income Statement, Retained Earnings Statement, and Cash Flows Statement. It’s important to be able to reads these. Get a good investing book that will teach you what these mean.
These financial statements will tell you what the corporation owns in assets, how much money they owe, how much money is owed to them, how liquid they are, how they are doing in terms of cash, where there money goes, and more financial information. Again, if this sounds confusing, click through the link below to find out more. Analysis of financial statements is an important step in fundamental analysis.
Management is another top priority when using fundamental analysis. You should read the annual reports of the company and read about what the management has to say about the direction the company is going in. What has management done in the past and how do you think it will affect the future? Do they have a promising future?
You must look at the past and pair it with a corporations decisions for the future to determine if their stock is a good buy. You can’t predict anything, but through fundamentally analyzing the corporation, you should get some idea of how well you think they will do later down the road. Research is critical for investing, and fundamental analysis is a great tool for researching stocks and other investments.
