Fundamental Analysis


DEFINITION of 'Fundamental Analysis'

A method of evaluating a security that entails attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and company-specific factors (like financial condition and management).

The end goal of performing fundamental analysis is to produce a value that an investor can compare with the security's current price, with the aim of figuring out what sort of position to take with that security (underpriced = buy, overpriced = sell or short).

This method of security analysis is considered to be the opposite of technical analysis.


Loading the player...

BREAKING DOWN 'Fundamental Analysis'

Fundamental analysis is about using real data to evaluate a security's value. Although most analysts use fundamental analysis to value stocks, this method of valuation can be used for just about any type of security.

For example, an investor can perform fundamental analysis on a bond's value by looking at economic factors, such as interest rates and the overall state of the economy, and information about the bond issuer, such as potential changes in credit ratings. For assessing stocks, this method uses revenues, earnings, future growth, return on equity, profit margins and other data to determine a company's underlying value and potential for future growth. In terms of stocks, fundamental analysis focuses on the financial statements of the company being evaluated.

One of the most famous and successful fundamental analysts is the Oracle of Omaha, Warren Buffett, who is well known for successfully employing fundamental analysis to pick securities. His abilities have turned him into a billionaire.

  1. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  2. Earnings Power Value - EPV

    A technique for valuing stocks by making an assumption about ...
  3. Asset Valuation

    A method of assessing the worth of a company, real property, ...
  4. Annual Report

    1. An annual publication that public corporations must provide ...
  5. Income Statement

    A financial statement that measures a company's financial performance ...
  6. Intrinsic Value

    Intrinsic value is the actual value of a company or an asset ...
Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: PowerShares Buyback Achievers

    Take a look at a thorough analysis of the Invesco PowerShares Buyback Achievers ETF, which focuses on firms that buy back their own stock.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  3. Stock Analysis

    3 Cheap Russian Stocks You Should Keep an Eye on

    Learn about three cheap Russian stocks to keep an eye on; the more than 50% decline in oil has led to weakness in Russian stocks listed in the United States.
  4. Stock Analysis

    3 Value Stocks Millennials Should Consider

    Understand what a value stock is and why a value stock would be attractive to a millennial. Learn about three value stocks that millennials should consider.
  5. Forex Education

    Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.
  6. Investing Basics

    What Are A Stock's "Fundamentals"?

    The investing world loves to talk about fundamentals, but do you know what it means?
  7. Markets

    Why You Shouldn't Buy Investments You Know

    Though it's got merit, buying what you know could hold you back from achieving greater investment yields.
  8. Active Trading Fundamentals

    Efficient Market Hypothesis: Is The Stock Market Efficient?

    Deciding whether it's possible to attain above-average returns requires an understanding of EMH.
  9. Active Trading Fundamentals

    Mad Money ... Mad Market?

    Jim Cramer's spirited recommendations are a case study in irrational market behavior.
  10. Options & Futures

    Trader's Corner: Finding The Magic Mix Of Fundamentals And Technicals

    For a record-holding stock trader, CANSLIM is the formula that identifies this magic mix.
  1. What metrics are most appropriate to evaluate companies in the aerospace sector?

    The fundamentals of investing in the aerospace sector are not particularly different from any other sector; potential shareholders ... Read Full Answer >>
  2. What level of return on equity is average for a company in the drugs sector?

    The drugs sector provides a variety of investing opportunities ranging from major drug manufacturing companies to generic ... Read Full Answer >>
  3. Why is the Trade Volume Index (TVI) important for traders and analysts?

    The trade volume index (TVI) is important for traders and analysts because it indicates whether an asset is being accumulated ... Read Full Answer >>
  4. Is it better to use fundamental analysis, technical analysis or quantitative analysis ...

    The most common methods that investors use to analyze the benefits and risks associated with long-term investment in the ... Read Full Answer >>
  5. What are the most popular forms of technical analysis?

    The most popular forms of technical analysis are simple moving averages, support and resistance, trend lines and momentum-based ... Read Full Answer >>
  6. Why is trading volume important to investors?

    Trading volume, or volume, is the number of shares or contracts that indicates the overall activity of a security or market ... Read Full Answer >>
  7. Should investors care more about microeconomics or macroeconomics?

    Individual investors are probably better off focusing on microeconomics than macroeconomics. There may be some disagreement ... Read Full Answer >>
  8. Has the Efficient Market Hypothesis been proven correct or incorrect?

    There is evidence to support the reasoning behind the efficient market hypothesis, but the basic conclusion drawn from the ... Read Full Answer >>
  9. What is the best method of analysis for forex trading?

    Types Of Analysis Used In ForexForex analysis is used by the retail forex day trader to determine whether to buy or sell ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!