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What Is Fundamental Analysis? Baseline Tools Explained

The fundamental analysis introduces a specific technique that helps traders assess the intrinsic stock value. It unites a complex set of factors that generally include various events, financial statements, industry trends, and more. Market participants use a variety of fundamental analysis tools with the aim of identifying the company’s essential attributes making it possible for them to analyse its potential worth.

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In this article, we will discuss how to do fundamental analysis, how it differs from technical analysis, and what tools you may need to perform it.

Understanding the Fundamental Analysis

To make things simple, fundamentals make it possible to clarify the key attributes of the firm or publicly-traded organisation. The process takes place taking into account a variety of micro and macroeconomic factors. As a result, investors get a chance to generate three different data sets:

  1. Publicly available data. It involves all possible announcements, news, and events highlighted by the company as a part of its publicly-known piece of information.
  2. Historical data. The information provides a clear picture of how the company has been doing over a specific period.
  3. Insider data. It includes information that is not publicly known but can still make a difference. The data may involve specific measures and tools to overcome recessions or crises.

If you are more interested in how to do stock fundamental analysis, you need to take into account mainly those factors and elements that are closely connected with stocks. They may consist of:

  • External politics and the geopolitical situation.
  • Official financial statements.
  • Press releases and news.
  • Competitors’ analysis and more.
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These all factors act as fundamental indicators letting you clarify the potential impact that can have. If the impact is negative, the share price is very likely to decline. At the same time, it has a great potential to recover in case of positive data. It is often a sigт for the form to recover or boost the share price.

Different Types of Fundamental Analysis Tools

With so many different fundamental analysis tools, investors will mainly deal with two major types.

Quantitative

It is a type of analysis that purely relies on numbers. A set of fundamental analysis tools of this type generally cover financial statements, stock, and share price reviews, competitors’ performance observation, etc.

Qualitative

This type covers various fields you might need to study as an investor. Those fields refer to the brand value, financial performance within a given time frame, decisions made by the board of directors and managers, etc.

The two approaches are different. However, both can play a crucial role whenever you need to perform a comprehensive and in-depth analysis. Do not forget to decide on the approach of how to do fundamental analysis. Some prefer using the top-down modality taking into account mainly macroeconomic factors while others prefer using the bottom-up approach. It means, you analyse the company’s data first and then move to macroeconomic data.

Fundamental Analysis vs Technical Analysis

The majority of beginners are confused to hear about these two types of analysis. Most of them do not understand how they are different. What’s more, others consider them the same and use them as interchangeable approaches, which is a huge mistake.

Fundamental analysis is performed with a focus on the in-depth company’s cash flow study that shows how the company will perform highlighting the economy and industry potential. As a result, an investor has enough information to evaluate the potential stock worth.

Technical analysis relies on internal market data that helps to study mainly the trading volume and the price of an asset. The main idea is to define specific patterns and moves that are likely or not to repeat in the near future. This is actually what provides technical traders a chance to capitalise.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.