What is Fundamental Analysis of a Company?

What is Fundamental Analysis of a Company?

To me, fundamental analysis is the most important factor when investing your money into a company. This is the foundation of investing in my opinion. Why? Well lets look at it this way, you do not want to invest in a company that cannot beat its earnings, right? You do not want to invest into a company that has a very corrupt CEO or board of directors for that matter, right? Many factors play into this.. Here is what fundamental analysis means.

I'll go over some basics, there is a lot to learn about this type of analysis. The definition of fundamental analysis is, "the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. The goal is to derive a forecast and profit from future price movements." Now that you know this. Lets get started.

The first thing I look for during this analysis are the financial side of things, or financial statements. This can be called quantitative analysis because that means the analysis of a situation, especially a financial market, by means of math and statistical modeling. I mainly look for the revenue, expenses, assets, and the company's liabilities. You do not want to invest in a company that can't handle expenses and liabilities. You want to understand these four aspects so you can gather information on whether they have potential for the future, which will help your investment in them appreciate in value.

Balance sheet, cash flow statement, and income statement. If you do not know what these are, here you go. A balance sheet simply put is the company's assets and liabilities, assets (how much a company owns) and liabilities (how much a company owes). Cash flow statement simply put exemplifies how much cash comes in and how much cash goes out in a given quarter. Lastly, the income statement, this is usually the first statement you come across when researching the company, it shows revenue, earnings, and earnings per share or EPS. These are extremely important when deciding whether to invest or not, you want a return on your money, make sure the earnings exceed expectations. Although these are important, there are some other items I want to touch upon.

When doing fundamental analysis, you want to focus on not only the company, but the industry the company is in, or the sector. You want to make sure the overall economy is strong. 

You could say, fundamental analysis is based off historical and present data/information, but with the data you are making a financial forecast for yourself. 

Fundamental analysis summed up in three types of analysis are, Economic, Industry, and Company. If you can understand these three simple analysis in depth. Then you can put your money to work, rather than you work for your money.

Many more in depth fundamental analysis you can do, and I will leave that up to you! There is a lot of information here to process, I don't want to throw it all at you at once. Take the time and learn before you put your money out there. 

"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful." - Warren Buffett

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Chris Barto