How To Perform Fundamental Analysis of Stocks? Know the Steps!

How To Perform Fundamental Analysis of Stocks? Know the Steps!

Learn how to do the fundamental analysis of stocks: Before embarking on your investing journey of inequities, it is very critical to understand which stock can be bought and the reasons behind the same. Investors work on different methods to arrive at the stock’s fair value.

There are 2 principal methods that are used to research and analyze stocks and to make investing decisions. These methods are fundamental analysis and technical analysis. Fundamental analysis, as the name depicts, means understanding and working on the fundamentals of the company i.e., revenues, profits, free cash flows, ratios, etc.

Fundamental Analysis of Stocks image

Basically, it means evaluating and determining the stock’s intrinsic value by using economic, financial, qualitative, and quantitative factors. On the other hand, technical analysis means the study of the price charts rather than the fundamental parameters.

In this article, we will focus on fundamental analysis only. Let’s delve deep into this concept and learn how you can study and practice this technique to make wise investment decisions.

Steps to Fundamental Analysis of Stocks

Here are the top four factors to check to perform the fundamental analysis of stocks

1. Understanding Business and Revenue Indicators

Before you decide to invest, make sure you understand the company’s business and revenue model. It should give further insights into how the company can perform in the near future. All these details can be easily accessed through their annual reports. 

Fundamental Analysis of Stocks details like its products, services, future contracts, expansion plans, etc. are also equally important and can be mined from the annual report. In today’s digital era, mobile applications can be used to learn fundamental analysis and to study the company. Mobile applications are time-saving and they provide the facility of studying anywhere and anytime.

Nowadays, learning formats have been updated as learners want the content to be engaging. The main numbers like revenues, profits, etc. are easily available on the mobile applications, making the learning process fast and easy. 

2. Analyzing and Inferring from Financial Reports

The next step is to study and analyze the financial reports of the company. In the financial reports, investors look at the company’s balance sheet, P&L account, cash flow statement, etc. Several investors understand the historic growth in revenues and profits and then forecast the revenues on the basis of this growth rate.

Subscribing to certain YouTube channels can help you understand how to read between the financial statements and how to forecast. Free content on YouTube will make it easier for you to learn and understand the financial reports and their relevance.

This content is available to the masses and can be used as per one’s requirement. Therefore, subscribing to some of the authentic YouTube channels can make the task of learning fundamental analysis easier. Hence, make sure to subscribe only to those that meet up to your expectations. 

3. Check Debt Levels and Competitors

While analyzing the balance sheet, it’s mandatory to look at the company’s debt levels and see whether or not it has sufficient cash flows to pay interest payments and principal amounts on time.

Try and avoid highly-leveraged companies as they can go bankrupt due to huge interest payments. Do not limit yourselves to the company you’ve been researching about. Be open to investing in its competitors if they have a better fundamental position.

Always try to invest in a company that is best among its peers. It is equally important to have a fair idea about the industry in which your subject company works. Try reading some blogs to learn about the industry and to understand the current events and updates. Blogs are emerging as a tool for learning as people love to learn while reading.

The experts in fundamental analysis pen down their experiences and learnings about the stock market. They explain the fundamental analysis and its importance in detail and it can help you get some unparalleled insights. 

4. Understand Future Prospects

Fundamental Analysis of Stocks is beneficial when you stay invested in the stock for the long term. Since arriving at the intrinsic value involves making assumptions for the next 5-10 years, always invest in the companies which are likely to deliver long-term benefits.

In case you want to have an idea about forecasting techniques, make sure you read some of the books on fundamental analysis.
There is a range of books written by well-known and successful investors which can help you learn fundamental analysis.
Reading these books can provide useful insights as the books have examples explaining the entire process.  

Also Check Out: Fundamental vs Technical Analysis of Stocks – Which one is Better?

In Closing

In this article, we looked into how to perform the fundamental analysis of stocks. Bottom line, while there are several ways and means to learn fundamental analysis, the most successful ones have been mentioned above (Mobile applications, YouTube channels, Blogs, and Books). Digital means of learning continue to dominate the industry due to their distinctive features offered by them. 

Keep learning and growing!

Tags: Analyzing and Inferring from Financial Reports, Check Debt Levels and Competitors, Fundamental analysis and technical analysis, Fundamental analysis of a company, Fundamental analysis of Indian stocks, Fundamental analysis of stocks course, Fundamental analysis of stocks website, How do you analyze a stock before buying?, How to do fundamental analysis of stocks PDF, How To Perform Fundamental Analysis of Stocks?, Understand Future Prospects, What are the steps in fundamental analysis?, What is the best fundamental stock analysis?