Definition of Fundamental Analysis
What is fundamental analysis? Hopefully you already know it has something to do with investing. Fundamental analysis is a way to analyze stocks.
Would you just take a job without looking into it such as if it offers benefits, if you’re required to work over-time, what the working conditions are, or even how much it pays? Your jobs biggest or maybe even sole purpose is to make you money, but you want it to work well with your life so that you don’t end up quitting and having no money.
The same goes for stock investing. The purpose of buying stock is to earn money and increase your wealth, but without prior research, you could lose money instead of make money.
The fundamentals of a corporation are top priority when looking into a stock, unless you are using technical analysis which mainly uses charts. First, you should look at the financial statements of a corporation. If you don’t have a degree in accounting or finance it’s likely you don’t know what financial statements are.
A financial statement is a statement that lists the specifics of a companies money situation. There are 4 separate financial statements that a corporation has available which include the Income Statement, Balance Sheet, Retained Earnings Statement, and Cash Flows Statement. You should be able to read and understand these before you begin investing.
These financial statements will tell you what the corporation owns in assets, how much money they owe, how much money is owed to them, how liquid they are, how they are doing in terms of cash, where there money goes, and more financial information. Again, if this sounds confusing, click through the link below to find out more. Analysis of financial statements is an important step in fundamental analysis.
It’s also important to look at management. What is the history of the CEO and other management authority? Do they look promising? Have they made many good growth-related decisions in the past? The managers of a corporation can make or break a company and you need to know they are going in the right direction.
Fundamental analysis is basically looking at the past and seeing the effects it has had on the present. Then, using this information, you must decide if this in addition to what their plans are in the future are promising for growth in the future. Also, look at their dividend payments over the years. If you are looking for a company that pays high consistent dividends, choose a company that has done so in the past. Researching stocks can make all the difference.
