Fundamental Analysis

Fundamental analysis is one of the cornerstones of investing, and gives you tools to help determine the value of different investments. From SWOT analysis to PE ratios, learn the tools of fundamental analysis here.

Basics of Fundamental Analysis

Fundamental Analysis
Fundamental Analysis: Principles, Types, and How to Use It

Frequently Asked Questions

  • What is the difference between qualitative and quantitative fundamental analysis?

    Quantitative fundamental analysis analyzes an investment according to easily measured factors, such as the earnings or assets of the company that issued a stock. Qualitative analysis looks at harder to measure factors such as the quality of a company’s management or the strength of its brand. There is not a hard line between the two and some factors can fall into both categories.

  • What is the difference between fundamental analysis and technical analysis?

    Fundamental analysis looks to see whether an investment is overvalued or undervalued based on underlying economic conditions, as well as the finances of the company or other organization that issued a stock or bond. Technical analysis instead looks at patterns in the price of an investment to predict future movements in that investment’s price.

  • Why do investors read financial statements when doing fundamental analysis?

    Financial statements contain many of the key metrics that help investors determine if a company is undervalued or overpriced. Financial statements have a company’s level of profitability, how much it holds in different types of assets, as well as how fast its sales and profits have grown over time. All of these figures are core parts of determining if a company is properly valued.

  • What is a good PE ratio for a stock?

    There is no one answer to this question as different companies will naturally have different PE ratios. For example, mature companies in defensive stock sectors generally have low PE ratios, while early stage companies or companies in fast-growing sectors often have very high PE ratios. To make the most of PE ratio as a metric of company value, make sure to compare PE ratios to similar companies in similar sectors, as well as to the same company at different periods in the past to get better comparisons.

Key Terms

  • Strength, Weakness, Opportunity, and Threat (SWOT) Analysis

    SWOT analysis is a qualitative analysis method for analyzing a company’s competitive position. It is meant to help figure out how a company can best take advantage of opportunities in its market

  • Securities and Exchange Commission (SEC) Form S-1

    An S-1 is the SEC registration form filed by companies seeking to become publicly traded in the U.S. It contains important information for investors seeking to invest in newly public companies.

  • Securities and Exchange Commission (SEC) Form 10-K

    A 10-K is an annual financial report the SEC requires all publicly traded companies in the U.S. to file. 10-K’s are a valuable source of informations for investors seeking to analyze a company.

  • Price-to-Earnings (P/E) Ratio

    PE ratio is the ratio of a company’s stock price to its earnings per share. Value investors commonly use it as one way to measure if a company is undervalued.

  • Fundamentals

    The fundamentals of an investment refer to the underlying factors that contribute to the price of an investment. Examples of these include the cash flow of a government who issued a bond or the profitability of a company whose stock you own.

  • Porter's 5 Forces

    Porter’s Five Forces is a fundamental analysis model for analyzing a company’s place within its industry or sector. The five forces are: competition in the industry, potential of new entrants into the industry, power of suppliers, power of customers, threat of substitute products.


  • Value Investing

    Value investing seeks to invest in companies trading for less than what their underlying fundamental metrics indicate they are worth. This is usually done by using fundamental or quantitative analysis strategies.

  • Macro Environment

    The macro environment refers to the broader economic conditions affecting the performance of an investment or a company. This can include factors such as inflation, unemployment, and place in the business cycle.

Roberto Goizueta, one of the greatest CEOs of Coca-Cola, grew the value of soft drink company's common shares by more than 3,500%.
Warren Buffett's Strategic Investment in Coca-Cola Explained

Explore Fundamental Analysis

AllToolsSectors & Industries
Book Value Per Common Share (BVPS): Definition and Calculation
Price-to-Earnings (P/E) Ratio
Price-to-Earnings (P/E) Ratio: Definition, Formula, and Examples
Terminal Value
Terminal Value (TV) Definition and Formula
10-K
10-K: Definition, What's Included, Instructions, and Where to Find It
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Amortization vs. Depreciation: What's the Difference?
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Bottom-Line Growth vs. Top-Line Growth: What's the Difference?
Cash Cow: A business or product that generates consistent cash flows over its lifespan.
Cash Cow: Definition, Investment Type, and Examples
Metrics: Measures of quantitative assessment commonly used for assessing, comparing, and tracking performance or production.
Understanding Metrics: Key to Performance Tracking and Analysis
Porter's 5 Forces definition: A model that identified and analyzes five competitive forces and helps determine an industry's weaknesses and strengths.
Porter's Five Forces Explained and How to Use the Model
SWOT Analysis
SWOT: What Is It, How It Works, and How to Perform an Analysis
Business Graph and Charts
What Causes Dividends per Share to Decrease?
Understanding Price to Free Cash Flow (P/FCF): Definition, Uses, and Examples
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Understanding Fundamentals: Types, Ratios, and Real-World Examples
Market Value: The price an asset fetches in the market.
What Is Market Value, and Why Does It Matter to Investors?
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Using EV/EBITDA and Price-to-Earnings (P/E) Ratios to Assess a Company
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Key Differences Between Biotechnology and Pharmaceutical Industries
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Porter's 5 Forces vs. SWOT Analysis: What's the Difference?
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"Sell in May and Go Away": Definition, Statistics, and Analysis
Understanding Consensus Estimates: Definition, Function, and Impact
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Should You Use the EV/EBITDA or P/E Multiple?
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Operating Margin vs. EBITDA: Understanding Profitability Metrics
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Valuing a Stock With Supernormal Dividend Growth Rates
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What Does It Mean When a Company's P/E Ratio Reads "N/A"?
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Top 3 Pitfalls of Discounted Cash Flow Analysis
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Can a Company Have Too Much Cash?
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Understanding ASP: Definition, Calculation & Real-World Examples
EBIDA
Understanding EBIDA: A Conservative Earnings Measure
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Understanding Weighted Average Shares and Shares Outstanding
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How to Become Your Own Stock Analyst
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Economic Depreciation: Definition, Vs. Accounting Depreciation
Residual Sum of Squares
Residual Sum of Squares (RSS): What It Is and How to Calculate It
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Zeta Model: Meaning, Formula, Significance
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Understanding Winsorized Mean: Formula, Examples, and Applications
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How to Analyze Corporate Profit Margins
Research and Development
What Is Research and Development (R&D)?
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Cyclical vs. Non-Cyclical Stocks: What's the Difference?
Analyzing Financial Statements: A Guide for Investors
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Understanding Stock Price and Market Cap: An Investor's Guide
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What Is SEC Form S-1? Filing Steps & Amendment Guidelines
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Dun & Bradstreet (D&B): What It Does, Funding, History, and Rating
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Specific Identification Inventory Valuation Method
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Comparing ETF Gross vs. Net Expense Ratios
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Multiple Compression: Meaning, Overview, Examples
Diluted Normalized Earnings Per Share
Diluted Normalized Earnings Per Share: What It Is, How It Works
Attest Service
Understanding Attest Services: CPA Reviews and Financial Integrity
Accounting Postulate
Accounting Postulate: What it is, How it Works
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Correlation Coefficients: Positive, Negative, and Zero
Primary Distribution: What it is, How it Works, Example
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Workflow: What It Is, How It Works, Digital Era
Buy: What it Means, Consumer Versus Business, Types
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Work Cell: What it is, How it Works, Example
Market Risk Premium: The difference between the expected return on a market portfolio and the risk-free rate.
What Is Market Risk Premium? Explanation and Use in Investing
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What Is the Best Measure of Stock Price Volatility?
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Maximizing Your Investment Strategy: When to Apply Fundamental, Technical, or Quantitative Analysis
Macro Environment
Macro Environment: What It Means in Economics, and Key Factors
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