What does 'Fundamentals' mean
The fundamentals include the qualitative and quantitative information that contributes to the economic well-being and the subsequent financial valuation of a company, security or currency. Analysts and investors analyze these fundamentals to develop an estimate as to whether the underlying asset is considered a worthwhile investment. For businesses, information such as revenue, earnings, assets, liabilities and growth are considered some of the fundamentals.
BREAKING DOWN 'Fundamentals'In business and economics, the fundamentals represent the basic qualities and reported information needed to analyze the health and stability of business or asset in question. This can include topics within both the macroeconomic and microeconomic disciplines that are considered standards for determining the financial values attributed to the assets.
Macroeconomics and Microeconomics
Macroeconomic fundamentals include topics that affect an economy at large. This can include statistics regarding unemployment, supply and demand, growth, and inflation, as well as considerations for monetary or fiscal policy and international trade. These categories can be applied to analysis of a large-scale economy as a whole or can be related to individual business activity to make changes based on macroeconomic influences.
Microeconomic fundamentals focus on the activities within smaller segments of the economy, such as a particular market or sector. This can include issues of supply and demand within the specified segment, as well as the theory of firms, theory of consumers and labor issues as related to a particular industry.
Fundamentals in Business
By looking at the economics of a business, such as the balance sheet, the income statement, overall management and cash flow, investors are looking at a company's fundamentals, which help determine the company's health as well as its growth prospects. A company with little debt and a lot of cash is considered to have strong fundamentals.
Strong fundamentals suggest that a business has a viable framework or financial structure, while those with weak fundamentals may have issues in the areas of debt obligation management, cost control or overall organizational management. A business with strong fundamentals may be more likely to survive negative events, such as economic recessions or depressions, than one with weaker fundamentals and may indicate less risk should an investor consider purchasing securities associated with the aforementioned businesses.
Other Fundamentals in Economics
While fundamentals are most often considered factors that relate to businesses, securities and currencies also have fundamentals. For example, interest rates, GDP growth, trade balance surplus/deficits and inflation levels are some macroeconomic factors that are considered to be fundamentals of a currency's value.