Definition of Fundamental Analysis
What is fundamental analysis? Hopefully you already know it has something to do with investing. Fundamental analysis is a way to analyze stocks.
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.
Technical analysis focuses on researching stocks using charts, whereas fundamental analysis looks into the fundamentals of a corporation. Let’s start by discussing financial statements. Chances are, unless you are an accounting or have taken business classes, you probably don’t know what financial statements are.
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A financial statement is a statement that lists the specifics of a companies money situation. There are 4 separate financial statements that a corporation has available which include the Income Statement, Balance Sheet, Retained Earnings Statement, and Cash Flows Statement. You should be able to read and understand these before you begin investing.
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.
The next piece of fundamental analysis is to look at management. In the past, have the decisions they’ve made improved the company and spurred growth? Do they give good plans for the future promising growth in the company with a good plan to get their? Management is a very important of part in every corporation and should not be overlooked.
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.
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