Why Should I Care About Fundamental Analysis of Stocks?

Fundamental analysis of stocks is the study of a company's financial health and its impact on the stock price. It is the most basic form of investing, and it can be used to determine if a stock is worth buying or not. Investors look for a company that has strong financial health and for any evidence of the company's stability in order to determine if the stock is worth purchasing. If there are no factors that indicate the company is underperforming or struggling, then it will be fairly safe to assume that buying shares in this company would not result in a loss of money.

What is Fundamental Analysis of Stocks?

Fundamental analysis of stocks is a type of investment analysis that looks at the economic and financial aspects of a security or market in order to determine its intrinsic value. The price of a stock is driven by the application of several fundamental economic, financial, and accounting metrics. The most common metrics include:

💡
EPS - Earnings per share
💡
P/E ratio - Price to earnings ratio
💡
Book value - book value per share
💡
Cash flow from operations - cash flow from operating activities
💡
Dividend yield - dividend payout ratio

These are often used by investors who want to buy and sell stocks.

How Do I Perform A Fundamental Analysis of Stocks?

Fundamental analysis is an investment strategy that focuses on the financial aspects of a company, such as its financial condition, earnings, and growth.

Investors use fundamental analysis to determine the value of stocks. They use it to decide whether or not to buy or sell a stock. They also use it to decide whether a stock is undervalued or over-valued.

The goal of fundamental analysis is to analyze information about the company in order to assess its value as an investment opportunity. Investors will look at things like how much money the company has in assets and liabilities, how much profit they make each year, how profitable they are per share, what its debt level is (how much money they owe), and other factors that might affect their profitability such as taxes and interest rates.

The Basics of Fundamental Analysis of Stocks

Fundamental analysis is the study of a company's financial statements and qualitative factors to determine whether the company is a good investment. It involves looking at the company's balance sheet, income statement, and other factors such as management quality, earnings quality, asset quality, etc. Three important ratios to consider while investing are Return on Invested Capital, ROE, and ROA.

Investment capital is the amount of money that is available for an investor to use to purchase securities. This includes money that they have saved up or borrowed from others.

ROE stands for return on equity and ROA stands for return on assets. The higher these numbers are, the more profitable a company has been in recent years - which may mean it will be worth investing in this stock if you are looking for long-term growth potential.

How Do You Calculate ROA or ROE?

ROA or ROE is the return on assets or return on equity. This metric is used to measure how a company's earnings are generated by its assets and equity. There are two ways to calculate ROA or ROE:

1) Return on Assets (ROA) = Net Income / Total Assets

2) Return on Equity (ROE) = Net Income / Shareholders' Equity

What is an Invested Capital and Why Does It Matter When Evaluating a Company's Performance?

The invested capital is the total amount of money that has been invested in a company. It is calculated by adding the company's current assets, its short-term investments, and its long-term investments.

It is important to know how much has been invested in a company because it can help you evaluate the performance of the company. The invested capital tells you how much money people are putting into the company and how valuable it is to those people.

How to Read a Company's Annual Report?

A company's annual report is an important document that provides details about the company's performance and financial position.

The first step of reading a company's annual report is to go through the table of contents. This will give you an overview of what information you will find in the document.

The second step is to go through the financial statements and read them thoroughly, including all notes and disclosures. You should then compare these statements with those in previous reports to see how the company has progressed over time.

The third step is to read through management discussion and analysis for insights on how management sees their business, as well as any risks or opportunities they are aware of.

Brainstorming over paper
Photo by Scott Graham / Unsplash

Why You Should Start Conducting Your Own Fundamental Analysis of Stocks Today?

Investing in the stock market is not as simple as it may seem. There are many factors to take into consideration and it can be difficult to know where to start. This article will provide you with a guideline for conducting your own fundamental analysis of stocks.

There are many reasons why you should start conducting your own fundamental analysis today, but here are the three main ones:

💡
You will have more control over what stocks you invest in.
💡
You can save time by conducting your own research instead of relying on other people's opinions.
💡
You will be better prepared for any changes that occur in the market.

If you find this post helpful or interesting, please share it.

Don't forget to follow our @Facebook and @Twitter