What Is Fundamental Analysis (FA)?
Fundamental analysis (FA) is an investment strategy that focuses on the underlying value of a company or asset. It involves analyzing financial statements, such as balance sheets and income statements, to determine the intrinsic value of a security. FA also looks at macroeconomic factors like economic growth, inflation rates, political stability and currency exchange rates in order to assess how these may affect the performance of a particular stock or sector. By understanding both micro-level and macro-level trends, investors can make informed decisions about which stocks are likely to outperform their peers over time.
In addition to evaluating individual companies’ fundamentals, fundamental analysts use quantitative models such as discounted cash flow analysis (DCF) and relative valuation techniques like price/earnings ratios (P/E). These tools help them identify undervalued securities with potential for long-term appreciation. Fundamental analysts also consider qualitative factors such as management quality and competitive advantages when making buy/sell decisions. Ultimately, they strive to purchase assets whose true worth exceeds their current market prices so that they can generate higher returns than those available from passive investments like index funds or ETFs.