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Purpose of Fundamental Analysis

Fundamental analysis of stocks

The share market is often considered as a good source of return on investment through equities thus enticing one to take a plunge into share trading despite the risks involved.Some amount of ground work and analysis can enable one to make an informed investment in the equity market. A smart and practical approach to arrive at a decision is through fundamental analysis of the intended shares to buy.

What are the factors involved in fundamental analysis

Some factors involved in such an evaluation are quantitative aspects and other qualitative aspects.A company's assets, its revenue and profits and the market share can be measured. Sources like the company's financial statements are good quantitative indicators.Details like what a company does to make money and its business model is not quantifiable. A company's corporate information or its brand value and recognition serve as qualitative indicators.Thus, many people advocate fundamental analysis for online share trading.

How does such information help me

This method of analysis includes examining the factors that can affect a company's business and its future prospects, as opposed to making an investment decision in the equity market based on merely looking at the variation of its pricing.

An understanding of these factors provides an insight for an investor to:

Arrive at the real value of a company: 
The idea behind this is to check the difference between a company's stock market value which is subject to variation and its real value. Examining various aspects of the company helps to determine the value of the company and thus, its stock value.

Maximize profits: 
Once you have determined the real value of a stock, you will know buying that company's share at a price lower or higher than this in the share market and hence reduce the losses or enjoy increased profits.

Enable investment decisions: 
Since this analysis gives a fair idea of a company of the company's growth prospects and performance, it serves as a tool for online share trading. It is no good to invest in a company blindly, fundamental analysis is intended to give you a fair idea of a company's real worth before investing for any time period – short term or long term. To sum it up, fundamental analysis aims to answer the one basic but crucial question of whether a company offers the best shares to buy and is worthy of your precious investment.
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