Fundamental analysis is a method of evaluating the intrinsic value of a security by examining related economic and financial factors. These factors can include a company's financial statements, industry trends, and macroeconomic conditions.
The goal of fundamental analysis is to determine the true value of a security and to compare it to its current market price. If the market price is lower than the security's intrinsic value, the security may be considered undervalued and a good investment. If the market price is higher than the intrinsic value, the security may be considered overvalued and a poor investment.
There are several key concepts in fundamental analysis:
Financial statements: Analysts review a company's financial statements, such as its income statement, balance sheet, and cash flow statement, to understand its financial health and performance.
Industry trends: Analysts consider the broader economic and industry conditions in which a company operates, including factors such as supply and demand, competition, and regulatory environment.
Macroeconomic conditions: Analysts also consider macroeconomic factors that can affect the overall performance of a security, such as inflation, interest rates, and economic growth.
Fundamental analysis can be a complex and time-consuming process, and it requires a thorough understanding of financial and economic concepts. It is just one approach to evaluating securities, and it is often used in conjunction with other methods such as technical analysis.
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