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Fundamental Analysis

What is Fundamental Analysis

Fundamental analysis is the comprehensive approach to study the business. Fundamental analysis is essential when one thinking of making a long-term investment. The long term can be the period more than one year from the date of purchase.

In a nutshell, fundamental analysis is studying the company from all angles- The company's financial performance in the long term, future business plans, the debt amount, business sector & business structure & evaluating the share's current market price.


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Understanding fundamental analysis

A fundamentally strong share can be a wealth generator over a long period. We have many examples of such a wealth generator. For example, the Compounding Annual Growth Rate (CAGR) of Bajaj Finserv Ltd. for the past ten years is 35.4%. In simple words, the share price of Bajaj Finserv has increased at the rate of 35.4% every year for 10 years. The CAGR of Britania Industries Ltd. for the past ten years is 34.6%.

From the above two examples, one can get a rough idea about how fast your money can grow if you stay invested in fundamentally strong shares for the long term.

Therefore fundamental analysis can be a tool to identify companies to invest in for the long term. FA will give you the confidence to stay invested in good shares in the volatility of the market.

Technical analysis gives you bets for short term, the short term approach can generate profits for you, but the long-term approach can be a wealth generator. So, the idle way of trading in the stock market will be getting the best of both technical analysis & fundamental analysis.

Quantitative and Qualitative Fundamental Analysis

The problem with defining the term "fundamentals" is that it can refer to everything that has to do with a company's financial health. They clearly include income and profit, but they can also cover anything from a company's market share to its managerial competence.

Quantitative and qualitative parameters can be used to classify the many fundamental factors. These terms' financial meanings aren't all that dissimilar from their ordinary definitions. The terms are defined as follows in a dictionary:

--- Quantitative analysis – "relating to data that can be represented as numbers and amounts

--- "Qualitative" refers to something's essence or standard rather than its quantity."


Fundamental analysis is a technique for identifying the true or "fair market" value of a stock. Fundamental analysts look for stocks that are now trading at a premium or a discount to their true worth. When the fair market value exceeds the market price, the stock is considered cheap and a buy recommendation is issued. Technical analysts, on the other hand, overlook the fundamentals in favor of analyzing the stock's previous price trends.

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