What is fundamental analysis? Hopefully you already know it has something to do with investing. Fundamental analysis is a way to analyze stocks.
You wouldn’t take a job without first finding out the pay, benefits, if you need to work overtime, or what the working conditions are like, right? The reason why you get a job is to make money, but that doesn’t mean you should work somewhere that you won’t be happy.
The same goes for stock investing. The purpose of buying stock is to earn money and increase your wealth, but without prior research, you could lose money instead of make money.
The fundamentals of a corporation are top priority when looking into a stock, unless you are using technical analysis which mainly uses charts. First, you should look at the financial statements of a corporation. If you don’t have a degree in accounting or finance it’s likely you don’t know what financial statements are.
Financial statements are exactly what they sound like. They are the statements that describe the corporation’s financial whereabouts. These include the Balance Sheet, Income Statement, Retained Earnings Statement, and Cash Flows Statement. It’s important to be able to reads these. Get a good investing book that will teach you what these mean.
The balance sheet lists out all the assets, liabilities, and equity of a company. The income statement shows the income for the company and where it came from. The cash flows statement details where the cash comes in and goes out, and the statement of retained earnings shows how much money will stay in the business after paying dividends.
The next piece of fundamental analysis is to look at management. In the past, have the decisions they’ve made improved the company and spurred growth? Do they give good plans for the future promising growth in the company with a good plan to get their? Management is a very important of part in every corporation and should not be overlooked.
Fundamental analysis is basically looking at the past and seeing the effects it has had on the present. Then, using this information, you must decide if this in addition to what their plans are in the future are promising for growth in the future. Also, look at their dividend payments over the years. If you are looking for a company that pays high consistent dividends, choose a company that has done so in the past. Researching stocks can make all the difference.
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