Fundamental analysis is one of the cornerstones of investing, and gives you tools to help determine the value of different investments. From SWOT analysis to PE ratios, learn the tools of fundamental analysis here.
Basics of Fundamental Analysis
Frequently Asked Questions
What is the difference between qualitative and quantitative fundamental analysis?Quantitative fundamental analysis analyzes an investment according to easily measured factors, such as the earnings or assets of the company that issued a stock. Qualitative analysis looks at harder to measure factors such as the quality of a company’s management or the strength of its brand. There is not a hard line between the two and some factors can fall into both categories.
What is the difference between fundamental analysis and technical analysis?Fundamental analysis looks to see whether an investment is overvalued or undervalued based on underlying economic conditions, as well as the finances of the company or other organization that issued a stock or bond. Technical analysis instead looks at patterns in the price of an investment to predict future movements in that investment’s price.
Why do investors read financial statements when doing fundamental analysis?Financial statements contain many of the key metrics that help investors determine if a company is undervalued or overpriced. Financial statements have a company’s level of profitability, how much it holds in different types of assets, as well as how fast its sales and profits have grown over time. All of these figures are core parts of determining if a company is properly valued.Learn More: How Do I Read and Analyze an Income Statement?
What is a good PE ratio for a stock?There is no one answer to this question as different companies will naturally have different PE ratios. For example, mature companies in defensive stock sectors generally have low PE ratios, while early stage companies or companies in fast-growing sectors often have very high PE ratios. To make the most of PE ratio as a metric of company value, make sure to compare PE ratios to similar companies in similar sectors, as well as to the same company at different periods in the past to get better comparisons.
Strength, Weakness, Opportunity, and Threat (SWOT) AnalysisSWOT analysis is a qualitative analysis method for analyzing a company’s competitive position. It is meant to help figure out how a company can best take advantage of opportunities in its market
Securities and Exchange Commission (SEC) Form S-1An S-1 is the SEC registration form filed by companies seeking to become publicly traded in the U.S. It contains important information for investors seeking to invest in newly public companies.
Securities and Exchange Commission (SEC) Form 10-KA 10-K is an annual financial report the SEC requires all publicly traded companies in the U.S. to file. 10-K’s are a valuable source of informations for investors seeking to analyze a company.
Price-to-Earnings (P/E) RatioPE ratio is the ratio of a company’s stock price to its earnings per share. Value investors commonly use it as one way to measure if a company is undervalued.
FundamentalsThe fundamentals of an investment refer to the underlying factors that contribute to the price of an investment. Examples of these include the cash flow of a government who issued a bond or the profitability of a company whose stock you own.
Porter's 5 ForcesPorter’s Five Forces is a fundamental analysis model for analyzing a company’s place within its industry or sector. The five forces are: competition in the industry, potential of new entrants into the industry, power of suppliers, power of customers, threat of substitute products.
Value InvestingValue investing seeks to invest in companies trading for less than what their underlying fundamental metrics indicate they are worth. This is usually done by using fundamental or quantitative analysis strategies.
Macro EnvironmentThe macro environment refers to the broader economic conditions affecting the performance of an investment or a company. This can include factors such as inflation, unemployment, and place in the business cycle.
Why Did Warren Buffett Invest Heavily in Coca-Cola in the Late 1980s?
What Do Investors Need to Know About 5G?
Biggest Companies in the World by Market Cap
Required Rate of Return (RRR): Definition and Examples
Book Value Per Common Share (BVPS): Definition and Calculation
Explore Fundamental Analysis
P/E Ratio - Price-to-Earnings Ratio Formula, Meaning, and Examples
Terminal Value (TV) Definition and How to Find The Value (With Formula)
10-K: Definition, What's Included, Instructions, and Where to Find it
Amortization vs. Depreciation: What's the Difference?
Bottom-Line Growth vs. Top-Line Growth: What's the Difference?
Cash Cow: Definition, Investment Type, and Examples
Porter's 5 Forces Explained and How to Use the Model
SWOT Analysis: How To With Table and Example
What Causes Dividends per Share to Decrease?
Price to Free Cash Flow: Definition, Uses, and Calculation
What Are Fundamentals? Types, Common Analysis Ratios, and Example
What Is Market Value, and Why Does It Matter to Investors?
Using EV/EBITDA and Price-to-Earnings (P/E) Ratios to Assess a Company
Biotechnology vs. Pharmaceuticals: What's the Difference?
Porter's 5 Forces vs. SWOT Analysis: What's the Difference?
Sell in May and Go Away': Definition, Statistics, and Drawbacks
Consensus Estimate: Definition, How It Works, and Example
Should You Pay More Attention to the EV/EBITDA or P/E Multiple?
Operating Margin vs. EBITDA: What's the Difference?
Valuing a Stock With Supernormal Dividend Growth Rates
What Does It Mean When a Company's P/E Ratio Reads "N/A"?
Top 3 Pitfalls of Discounted Cash Flow Analysis
Can a Company Have Too Much Cash?
Average Selling Price (ASP): Definition, Calculation and Examples
Earnings Before Interest, Depreciation, and Amortization (EBIDA)
How do you calculate the excess return of an ETF or indexed mutual fund?
Weighted Average Shares vs. Shares Outstanding
How to Become Your Own Stock Analyst
Economic Depreciation: Definition, Vs. Accounting Depreciation
Residual Sum of Squares (RSS): What It Is, How to Calculate It
Zeta Model Definition
Winsorized Mean: Formula, Examples and Meaning
Can Whirlpool Remain Durable?
How to Analyze Corporate Profit Margins
Research and Development (R&D) Definition, Types, and Importance
Cyclical vs. Non-Cyclical Stocks: What's the Difference?
How Should I Analyze a Company's Financial Statements?
How Are a Company's Stock Price and Market Cap Determined?
SEC Form S-1: What It Is, How to File It or Amend It
Dun & Bradstreet (D&B): What It Does, Funding, History, and Rating
Specific Identification Inventory Valuation Method
Comparing ETF Gross vs. Net Expense Ratios
Multiple Compression: Meaning, Overview, Examples
Diluted Normalized Earnings Per Share
Attest Service: What it is, How it Works
Accounting Postulate: What it is, How it Works
What Do Correlation Coefficients Positive, Negative, and Zero Mean?
Work Cell: What it is, How it Works, Example
What Is Market Risk Premium? Explanation and Use in Investing
What Is the Best Measure of Stock Price Volatility?
When to Use Fundamental, Technical, and Quantitative Analysis
Macro Environment: What It Means in Economics, and Key Factors
What Are Some Examples of Companies That Have High Capital Expenditures (CapEx)?
Collaborative Commerce: What it is, How it Works, Examples
Anti-Fragility: Definition, Overview, FAQ