Fundamental Analysis Tutorials

Fundamental analysis can seem quite confusing for the beginning share trader or investor, a thorough understand of the basic concepts and terms of fundamental analysis is a must if you want to seriously have a crack at becoming a successful investor. This fundamental analysis tutorial will teach you the basics of what you need to know regarding fundamental analysis of stocks and shares, as well as help you to make sense out of the vast array of share market information that bombards us each day via numerous media sources.

There are essentially two main aspects to analysis of a company’s fundamentals: who works at the company and what the company does or the “story”, and what the company balance sheet looks like, or “the numbers”. Without further delay, lets dive in.

• What exactly is fundamental analysis?

Fundamental analysis is the study of the variables that affect a company’s earnings and dividends, it also studies the relationship between the share price of a company and the various elements of its performance and financial position. Fundamental analysis involves an in depth study of a company’s competitors, the sector or industry it is a part of and the broader economy.

Despite the fact that the data used is mostly historical, fundamental analysis is forward looking.The main objective of fundamental analysis is to determine a company’s intrinsic value or its growth prospects. The intrinsic value can be compared to the current value of the company as measure by its share price. If a company’s shares are trading lower than the intrinsic value, then the shares might be seen as hot shares to buy, in other words, a good value. Many investors and traders utilize fundamental analysis to choose a company to invest in, and technical analysis to help time their entry and exit decisions.

• Individual Company Analysis

Let’s say you want to analyze Newcrest Mining LTD (NCM), as stated previously the analysis of a company has two main parts; the “story” or what the company does and what its outlook is, and the “numbers” or the financials of the company; balance sheet, income statement, ratio analysis. Unfortunately, balance sheet and ratio analysis is probably the most pain staking aspect of fundamental analysis for beginning investors. The large amount of numbers can be somewhat daunting for individuals new to stock trading. It will become less daunting if you adopt a methodical approach and keep in mind that beneath all the numbers is a real business that is run by real people producing real goods and services, this is the “story” part of fundamental analysis.

It is not very likely that you will need to do number crunching for every company you wish to invest in, you are better off spending your time on developing and keeping abreast of the company story. You can obtain historical and forecast balance sheets and ratio analysis from a discount or full service stock broker. Try to break down each aspect of the company you are analyzing as either a part of the “story” or a part of the “numbers” aspect, this is the first step in analyzing a company and will help to make fundamental analysis less confusing.

Please see the next lesson in this fundamental analysis tutorial in which we will introduce the shares financial report.