Getting Started Building a Trading Career Tools and Resources Glossary - Backtesting
- Backtesting Depth
- Bear Market
- Bull Market
- Candlestick
- Charting
- Chart Patterns
- Day Trading
- Dividend Yield
- ETF
- Fundamental Analysis
- Leverage
- Limit Order
- Index Fund
- Margin Trading
- Market Capitalization
- Mutual Fund
- Market Trends
- Moving Averages
- Price-to-Earnings Ratio (P/E Ratio)
- Portfolio Diversification
- Positions in Prosperse
- Risk Management
- Scalping
- Short Selling
- Stock Alerts
- Stock Scanning
- Stock Screener
- Stop-Loss Order
- Support and Resistance
- Swing Trading
- Take Profit
- Technical Analysis
- Trend Lines
- Volatility
Glossary - Fundamental Analysis
Fundamental Analysis definition
An analysis method that evaluates a security's intrinsic value by examining economic and financial factors.Fundamental analysis is a method of evaluating a security's intrinsic value by examining related economic, financial, and qualitative factors. It involves analyzing a company’s financial statements, management, competitive advantages, industry conditions, and economic factors to determine its fair market value.
Use Cases
Investors use fundamental analysis to assess whether a stock is overvalued, undervalued, or fairly priced. For example, an investor might analyze a company’s earnings, revenue growth, and profit margins to determine if its stock is a good buy. If the company’s intrinsic value is higher than its current market price, the investor might consider buying the stock.
This approach is often used in long-term investing strategies, where the goal is to invest in companies that are expected to grow steadily over time.
Historical Context
Fundamental analysis has its roots in the early 20th century, with the work of Benjamin Graham and David Dodd, who laid the foundation for value investing. Over the years, it has evolved with more sophisticated financial models and the availability of comprehensive financial data. Today, fundamental analysis is a cornerstone of investment decision-making, used by individual investors and institutional analysts alike.
Prosperse offers tools that assist investors in performing fundamental analysis, including access to financial statements, key ratios, and industry comparisons, helping users make informed investment decisions.
Visual Aid
Below is an example of fundamental analysis, starting with balance sheets and other important documents.
This dashboard provides a comprehensive view of a company’s financial health, allowing investors to make data-driven decisions about their investments.
Related Terms:
- Technical Analysis: An analysis method that uses past price data and volume to predict future price movements.
- Market Capitalization: The total value of a company's outstanding shares, calculated by multiplying the share price by the number of shares.
Frequently Asked Questions
What is fundamental analysis?
Fundamental analysis is a method of evaluating a security's intrinsic value by examining related economic, financial, and qualitative factors, such as a company’s financial statements, management, and industry conditions.
How does fundamental analysis differ from technical analysis?
Fundamental analysis focuses on determining a company's intrinsic value based on economic and financial factors, while technical analysis evaluates price movements and volume patterns to predict future price movements.
What tools are used in fundamental analysis?
Tools used in fundamental analysis include financial statements, key ratios (such as P/E ratio, EPS, and ROE), industry comparisons, economic indicators, and qualitative analysis of management and market position.
Is fundamental analysis effective?
Fundamental analysis is widely regarded as an effective method for long-term investing, helping investors identify undervalued stocks and make informed decisions based on a company’s intrinsic value.
Can beginners use fundamental analysis?
Yes, beginners can use fundamental analysis by learning the basics of financial statements and key ratios. Many platforms, including Prosperse, offer tools and resources to help beginners get started with fundamental analysis.
What are the limitations of fundamental analysis?
Fundamental analysis can be time-consuming and requires access to accurate and comprehensive financial data. It also doesn’t account for short-term market movements driven by sentiment or technical factors.
What are some key financial ratios in fundamental analysis?
Key financial ratios include the Price-to-Earnings (P/E) ratio, Earnings Per Share (EPS), Return on Equity (ROE), and Debt-to-Equity ratio. These ratios help investors evaluate a company's financial health and growth potential.
How do I get started with fundamental analysis?
To get started with fundamental analysis, begin by learning how to read financial statements and calculate key ratios. Platforms like Prosperse provide the tools and data needed to analyze companies and make informed investment decisions.
