Stock fundamental analysis is the broader term where the investor makes a future prediction by analyzing the current financial statement of the company. As the word suggests, the fundamental analysis does not stick to only a few factors by which you make an appropriate decision, it has several ways through which you can study the economic and financial condition of the company. The future projects of the company give a wide range of ideas to estimate the value of the company.
The fundamental analysis cannot be learned by birth, the skill is polished when you keep on learning about the companies and its recurring nature of their unpredictable profit earning. You can learn these skills by studying the information mentioned by companies or you can also take fundamental analysis courses, through which you learn some tips and tricks to determine the best company to invest in and become the shareholder of that particular company.
From the above sentences, you can easily observe that fundamental analysis is extremely important. Further in the article, we will learn about the two major types of fundamental analysis, Quantitative fundamental analysis, and Qualitative fundamental analysis.
- Quantitative Fundamental Analysis
Analysis related to numbers and calculated amounts are shown in quantitative fundamental analysis. They are the biggest source of business because through which we can analyze the financial position of the company, the revenue generated by the company, debt taken by the company, etc, and many more financial figures. With this analysis, you can clearly understand the position of the company, only if the financial statement of the company is not being manipulated.
The balance sheet of the company, The income statement of the company, Cash flow of the company should always be considered while comparing the data. Through those data, you can compare the working of several companies and finalize a chunk of companies where you would like to buy shares.
- Qualitative Fundamental Analysis
Even the qualitative fundamental have several aspects to analyze the company. How a company represents itself in the market says a lot about the company. Either the company is following genuine practices to grow in the market or it is just cheap tactics to gain the customers, you need to make the whole analysis to understand the strategies of the company. Make sure that the management of the company is smart enough to bring up the entire company even in the bad market conditions. The company does much better than its competitors, they are taking enough risks with intelligence or not.
Qualitative analysis is the key to which you can understand the goodwill of the company, brand name recognition, or patents of the company. If you have properly studied the company then it will be easier for you to make out that the company will be making a profit or loss in the upcoming future.
Both quantitative and qualitative fundamental analysis is equally important, with the help of one analysis you can never get the entire information. Having an edge in both the analysis is equally important. There are many fundamental analysis courses available through which you can understand to grasp the information related to quantitative and qualitative analysis.
Tools of fundamental stock analysis
These tools have a major role in determining the actual capability of the company to multiply borrowed money. As an investor, you should have high knowledge to calculate given ratios.
- Earnings per share
Knowing the earning per share or EPS of the company is extremely important for the investor, earnings per share means the revenue generated by the company in each shared issued. EPS is the most important quantitative fundamental analysis where the total revenue of the company is divided by the outstanding shares of the company. The higher EPS, the higher will be the chances of the returns in the future. You can compare the EPS of several companies and then always go for the company with higher EPS.
- Price to earnings ratio
Price to earnings ratio or P/E compares the company’s payout to the price of the stock. With the help of this ratio, you can know if the share of stock pays well for its price or not. The lower will be the P/E, there will be higher the chances of getting more price of the issued share. The P/E is calculated by dividing the share price of a particular company by the EPS of the company.
- Returns on equity
Returns on equity or ROE is the amount that tells you the efficiency of the company to make use of the amount of issued share. Higher ROE is the sign that the company has more capability to make use of the invested amount and generate more profit. But you can not make the complete decision by ROE only because you need to consider more factors to reach the final decision.
- Online courses to learn fundamental analysis of shares
Online fundamental analysis courses help to understand the basic concepts related to the capital market. The investor should be a regular user of fundamental analysis to enhance the decision-making skills for investment. These courses help you to how you can understand the balance sheet and income statement of the company.
If you are not sure whether to take any paid courses or not, you can always learn the basics from unpaid courses and when you are completely sure about learning fundamental analysis then you can surely do that. The best fundamental analysis course also teaches you the right way to calculate ratios of the company like earnings per share ratio or profit to earnings ratio, as given above. Once you learn to make a comparison of the ratios of different companies there will be lesser chances of taking risks while you invest your money in any of the companies.
There are also several books of experienced fundamental analyst available in the market, with the help of those books you can learn some strategies to complete your analysis work before investment. In addition to that, books also share some bad experiences of the analyst while doing research work, you can always learn from their mistakes and do much better in investing in the share.