Fundamental analysis is sometimes considered to be a foundation of solid investing. It helps you determine the underlying health of a company by examining the business' core numbers: income statements, earnings releases, balance sheets, and other indicators of economic health. From these fundamentals, potential investors can evaluate if a stock is under- or over-valued.
Fundamental analysis begins with an individual stock, but it also extends to that company's larger context. It explores questions like these: Is the company competitive within its industry? Is that industry growing or shrinking, compared to other sectors?
Shares of companies with strong fundamentals may go up over time, while fundamentally weak companies may see their stock prices fall. This makes fundamental analysis especially valuable to long-term investors.
We've broken down the essentials of fundamental analysis into three instructive articles:
A company's balance sheet reflects its assets, liabilities, retained equities, and more. Before you invest, be sure you understand these critical terms and what they reveal about the financial health of your potential investment.
How do you know if your company is doing well? Learn how to read an income statement and how gross income and gross margin are calculated.
Depending on the credit market, your company's operating cash flow is critical to surviving challenges. You'll need a deep understanding of what a cash flow statement reveals — and what it doesn't — as you identify potential opportunities for growth.