Fundamental Analysis

Fundamental analysis

Security analysis that seeks to detect misvalued securities through an analysis of the firm's business prospects. Research often focuses on earnings, dividend prospects, expectations for future interest rates, and risk evaluation of the firm. Antithesis of technical analysis. In macroeconomic analysis, information such as interest rates, GNP, inflation, unemployment, and inventories is used to predict the direction of the economy, and therefore the stock market. In microeconomic analysis, information such as balance sheet, income statement, products, management, and other market items is used to forecast a company's imminent success or failure, and hence the future price action of the stock.

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fundamental analysis

Analysis of security values grounded in basic factors such as earnings, balance sheet variables, and management quality. Fundamental analysis attempts to determine the true value of a security, and, if the market price of the stock deviates from this value, to take advantage of the difference by acquiring or selling the stock. Fundamental analysis may involve investigating a firm's financial statements, visiting its managers, or examining how a particular industry is affected by changes in the economy. Compare technical analysis.

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Fundamental analysis. Fundamental analysis is one of two main methods for analyzing a stock's potential return.

Fundamental analysis involves assessing a corporation's financial history and current standing, including earnings, sales, and management. It also involves gauging the strength of the corporation's products or services in the marketplace.

A fundamental analyst uses these details as well as the current state of the economy to assess whether the stock is likely to increase or decrease in value in the short- and long-term and whether the stock's current price is an accurate reflection of its value.

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Fundamental Analysis

What Does Fundamental Analysis Mean?

A valuation method that measures the intrinsic value of a security by examining related economic, financial, and other qualitative and quantitative factors. Fundamental analysts study everything that could possibly affect a security's value, including macroeconomic factors (such as the overall economy and industry conditions) and specific factors (such as the financial condition and management of companies). The end goal of fundamental analysis is to produce a value that an investor can compare with a security's current price in an attempt to figure out whether the security is underpriced or overpriced. Fundamental analysis is the opposite of technical analysis.

Investopedia explains Fundamental Analysis

Fundamental analysis employs real data to evaluate the value of a security. Although most analysts use fundamental analysis to value stocks, this method of valuation can be used for almost any type of security. For example, an investor can perform fundamental analysis on a bond's value by looking at economic factors, such as interest rates and the overall state of the economy, along with information about the bond issuer, such as potential changes in its credit ratings. With stocks, this method can consider revenues, earnings, future growth, return on equity, profit margins, and other data to determine a company's underlying value and potential growth. Fundamental analysis is used to look deeply into a company's financial statements. Warren Buffett, the Oracle of Omaha, is a well-known fundamental analyst.

Related Terms:
• Balance Sheet
• Income Statement
• Intrinsic Value
• Quantitative Analysis
• Technical Analysis