What is Fundamental Analysis ?
The very basics when talking about stocks , fundamental analysis is a technique that attempts to determine a securities value by focusing on underlying factors that affects a companies actual business and its future prospects. In FA both Quantitative and Qualitative study is done. The term simply refers to the analysis of the economic well being of a financial entity as opposed to only its price movements. FA servers to answer questions, such as
Is the company's revenue growing ?
Whats companies cash flow to meet day to day requirements ?
Is it actually making profit ?
Is it in a position strong enough to capture more market share ?
How much debts it has in its books ? How healthy it is compared to its equity capital ?
Is the share prices justifying , companies earnings ?
Is management trying to " cook the books" ?
Whats Critics feel about fundamental Analysis ?
Two proponents who are critical of FA are Technical Analyst & believers of "efficient market hypothesis".
Technical Analyst believe that all news of the company is already priced into a stock , therefore a stocks price momentgives more insight than the underlying fundamental factors.
Followers of efficient market hypothesisbelieve that since market efficiently prices all stocks on a ongoing basis, any opportunities for excess returns derived from fundamental or technical analysis would be almost immediately whittled away by the markets many participants, making it impossible for any one to meaningfully outperform market over the long term.
