fundamental analysis for beginners

Fundamental analysis for beginners

Fundamental analysis for beginners

Fundamental analysis for beginners

When we want to purchase any grocery item or household things, what do we do? We go to market, compare things and bought one which fulfills our requirement.

But if we want to purchase any business, what we will check?

The detailed evaluation of such business prior to purchase is called fundamental analysis. If you are a beginner in investing, you have heard about the fundamental analysis of the stock somewhere.

Fundamental analysis for beginners

In this article, we will see how to do a fundamental analysis of stocks before buying them.

Everyone wants to buy stock of good company but only a few can tell which company is good.

A profitable company not only creates wealth for shareholders but also earns a high level of profits compared to the expenditure made. Such businesses are known as high-margin businesses.

Fundamental analysis for beginners

fundamental analysis for beginners

While doing fundamental analysis, the investor thinks about the possibility of company profits. Fundamental analysts study the company for a long time horizon.

On the other hand, investors who are not willing to invest for such a long time, check technical analysis to enter in stock for short time.

Let’s see which points we have to check while doing fundamental analysis of stocks.

  • Company production is regular. sometimes production is in expanding mode.
  • Profits earned by the company is increasing.
  • Net profit after paying all the taxes is also more than in previous years.
  • The company has enough liquidity for its expansion planning.
  • The company has started some activities to expand the business in new areas.
  • The company has high pending order book.
  • The company has no debt to pay or have small debt that can be paid easily from available money.

By doing a fundamental analysis, one can be sure about the possibility of future profits of the company.

Note that such stocks may already trade at a higher price so an investor can wait for any market correction or can buy such stock in small parts for a longer time frame.

Fundamental analysis for beginners

You may check following things while doing fundamental analysis:

  • EPS (Earning per share): EPS is a widely used ratio to measure a company’s profitability. When we divide the net profit of the company by the number of shares we get EPS.
  • PE Ratio: The Price-Earning Ratio (P/E Ratio) is obtained by dividing the current market price of a share by the Earnings Per Share(EPS) of the company. This ratio tell you how many rupees you have to invest for earning one rupee.
  • Book value: The net difference between the company’s total assets and total liabilities is known as book value.
  • Sales: Read the sales figures for last some quarters and years.
  • Net profit: Read the quarter-wise and year-wise profit of the company. You may also observe the percentage growth of profit of the company.

You may also study the company on the basis of following parameters.

Understand the company

Observe the company business, its products, its business model, etc.

By studying this information you can decide whether to buy this stock or not? you can visit the company website for gathering such information.

Read the financial reports of the company

While reading annual reports of company, keep attention to the balance sheet, profit loss statement, cash flow statement, Sales and growth in sales, etc.

Check the competitors of company

By doing this, you will know the competition faced by the company. In case of more competitors, the chances of getting more revenue are less.

This article on ‘Fundamental analysis for beginners’ will help you to select good stocks for investing.

You may like to read: How to read Candlestick charts

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