What is Fundamental Analysis
The basis of fundamental analysis is to determine the financial stability and the future profitability of companies, and therefore their future worth, which is extremely important as this future worth determines their future share price.
To put this simply, a company with its sales revenue and profits increasing will be worth more than a company with declining sales revenue and profits.
Financial reports are provided by companies, typically on a quarterly basis together with one final annual report.
These financial reports are accounting statements which provide a means of tracking how much money a company is making and how much it is spending.
Stock market Analysts use these financial reports to forecast future sales revenue and profits.
While an individual stock investor can go through the financial reports themselves, generally it is quicker and simpler to use summarized data that is readily available from information websites.
These websites also usually provide forecast sales and profit data as well.
Analyzing the Past and Future
Fundamental analysis looks at both the past and the future.
The past sales and profit data is used to determine how reliable and consistent a company is, while the forecast sales and profit data is used to determine the company’s future growth potential and hence the potential future share price gain.
This financial data allows an investor to make an informed decision regarding the future business value of a company and thus it’s investing potential.