Fundamental analysis is concerned with the assessment of the overall condition of a company. As an important concept of corporate finance, fundamental analysis represents the process of studying the income and financial statements of a business entity.
At the same time, expenses and obligations are also considered for the purpose of fundamental analysis. As management is an important part of any company and is responsible for the development of that company, this is also assessed through the analysis.
Market plays an important role in the development of the company and thus, it is also kept under the microscope. There are several instruments to accomplish fundamental analysis. Some of these instruments are the past records of the company and the present data regarding the performance.
Through these records, the analysts can assume the future of the business because the comparison of present and past data would show the development of the company.
Apart from assuming about growth of the particular company, fundamental analysis is also meant to evaluate the shares of the company and their performance in the stock market. At the same time, with the help of the fundamental analysis reports one can anticipate the movement of the stock prices of that particular company in the future. Along with this, the risk factors that are related to the particular business are also estimated through the process of fundamental analysis.
Again, fundamental analysis is known as the basic factor for investing in the securities market. This very analysis helps the investor to identify the stocks with good potentiality and also to decide about the purchasing prices. The fundamental analysis believes firmly that the market has committed some mistake and a particular stock has been priced wrongly. Because of this the security may suffer for some short periods, but if the history of the company is good enough, then the investor should wait till the market understands the error. Another way of selecting stocks is known as technical analysis. According to this concept, the existing trends are the best source to judge the movements of the stocks. An investor can use a combination of both the fundamental analysis and technical analysis for the purpose of investment.
Last Updated on : 27th June 2013