A soldier going to war needs his guns and ammos, likewise a stock trader requires may be not a physical weapon but a weapon more deadly and destructive;having the trading knowledge. Fundamental analysis is just one way of equipping yourself in this world war of stocks.
Fundamental analysis takes a holistic look at a company, taking into account such factors as financial reports, earnings per share, and new innovations within a company. Fundamental Analysis can be defined as the act of looking at a company's workings in order to determine whether the company is a good candidate to a open a position with.
Fundamental analysis serves as a measuring tool to determine whether it is worthwhile to stay in a certain company.
Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis.The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis.
Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives:
- to conduct a company stock valuation and predict its probable price evolution,
- to make a projection on its business performance,
- to evaluate its management and make internal business decisions,
- to calculate its credit risk.
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