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Benefits of Fundamental AnalysisBack

A method of evaluating a commodity or security that entails attempting to measure its real value by examining related to financial, economic and other quantitative and qualitative factors. Fundamental analysts read everything which affects the security's or commodities value, including the overall economy and industry conditions and company-specific factors (like financial condition and management).

 

Fundamental analysts’ main focus on the underlying business of the company being evaluated and specifically look at quantitative measures such as:

  • Revenues
  • Earnings
  • Assets
  • Debts

Ratios that you may be familiar with include:

  • Price to earnings ratio (PE)
  • Return on equity (ROE)
  • Dividend yield

These financial measures are often combined to produce fundamental or financial ratios that analysts can use to compare the company they are analysing to:

  • Other companies in the same industry
  • The overall market
  • Previous periods results for the same company.

Investors can use either a top-down or bottom-up approach.

  • The top-down investor starts his or her analysis with global economics, including both international and national economic indicators, such as GDP growth rates, inflation, interest rates, exchange rates, productivity, and energy prices. He or she narrows his or her search down to regional/industry analysis of total sales, price levels, the effects of competing products, foreign competition, and entry or exit from the industry. Only then does he or she narrow his or her search to the best business in that area.
  • The bottom-up investor starts with specific businesses, regardless of their industry/region.

Fundamental Analysis Benefits

  • Long-term investment opportunities
  • Determining the intrinsic value of an investment
Benefits of Fundamental Analysis
 
Benefits of Fundamental Analysis
 
 
Posted on: 09-Oct-2014 | Posted by: NIFM | Comment('0')
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