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Dear Entrepreneur, What is Fundamental Analysis In The Stock Market?

BY Soko Directory Team · May 13, 2022 02:05 pm

KEY POINTS

Qualitative analysis involves the study of a company’s goodwill, consumer behavior, demand, and company recognition in broader markets.

KEY TAKEAWAYS

Quantitative analysis is inclined towards statistics, reports, and data. It is solely based on its financial statements, quarterly performance, balance sheets, debt, cash flow, etc.

Fundamental analysis is the study of assessing stock from a 360-degree perspective. It has been one of the most rewarding analyses in the history of stock markets.

It is also referring to the process of studying any security’s natural value with the object of making profits while trading in it.

The primary purpose of fundamental analysis is to determine whether the security or stock is undervalued or overvalued and thereby make an informed decision to buy, hold, or sell it in order to maximize the potential for gains.

Fundamental Analysis in simple terms is the art of evaluating any business to its basics and getting an accurate picture of how financially healthy and sustainable it is.

It involves studying a company’s potential for future growth by considering various micro and macroeconomic factors. This analysis assists in deriving at the natural value of stock that aids investment decisions.

It assesses a company’s potential based on financial and non-financial data to obtain the fair value of its security, stock, bond, or derivative. It is a powerful tool for investors and stakeholders to understand the growth prospects and financial health of a company.

It involves examining every aspect of a company’s operations through its balance sheet, past performance, financial reports, and even market goodwill, management, and consumer behavior to arrive at the intrinsic value of its securities.

The analysis begins from macroeconomic factors such as the economy and industry performance and goes down to microeconomic factors like management, strategic initiatives, and business policies.

It combines analysis of a company that includes: financial statements, internal factors such as operational efficiencies, management competence, usage of technology, and external factors like geopolitical, supply chain disruptions, events, industry trends, government policies

There are two types of fundamental analysis:

  1. Qualitative and Quantitative

Qualitative analysis involves the study of a company’s goodwill, consumer behavior, demand, and company recognition in broader markets.

It aims to unearth answers to questions like how it is perceived, how management decisions or announcements create a buzz in the market, and how it is different from its substitutes. In addition, its brand value and other common factors depict its socio and economic position in the market.

  1. Quantitative analysis

Quantitative analysis is inclined towards statistics, reports, and data. It is solely based on its financial statements, quarterly performance, balance sheets, debt, cash flow, etc.

It involves analyzing numbers, ratios, and values to understand the price of the shares and the company’s overall financial health.

Read More: Buy Stocks In Companies That You Believe In

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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