What is Fundamental Analysis and How to Do it?

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All you will find is lump-sum investments in the portfolio or post-retirement plans whenever it comes to fundamental analysis. But in this article, we will tell you all about fundamental analysis concerning proactive investments regularly with the help of SIP.

Many people in today’s world want to earn additional money from a passive source. They invest in all kinds of things – Mutual Funds, Equity, ETFs, even small start-ups (using equity), or invest in their portfolio. Many working-class people dream of having two sources of income– their regular job and the additional source.

In this piece, we will educate you on what is known as fundamental analysis and how is it related to that extra source.

To have an additional source – you require to do some homework. Now, research in investments is like research while buying a car. There will be many aspects you will consider – Long term benefits, your monthly budget, your goals, and so on.

Once you have clarity about what you want and it matches your requirements – you invest in it. The idea is that you first invest in that additional source regularly, and after a point, it starts paying you back.

What is Fundamental Analysis?

In the long term investment world – fundamental analysis is your best friend, and it will never betray you. Since your passive source is a long term goal, fundamental analysis will ensure that this source is solid and secure. Now, what fundamental analysis does is – it studies the financial reports of any organization – its financial aspects (balance sheet, cash flow, income expenditure, and every other report). It studies the state of the organization (concerning its past, and in comparison to the competition), it studies the general state of the economy (inflation, interest rates, so on), and it studies the internal aspects of the organization (BOD, goodwill, operations, so on).

After this in-depth analysis of the organization – you can know in which company you have to invest. In such a way, you build a portfolio that suits your needs and goals. You invest in it every month after saving a certain amount and after a time. With all the capital growth and wealth accumulation – you get your reward.

The systematic investment process (i.e., after a regular interval) is known as the Systematic Investment Plan (SIP).

Fundamental Analysis matched with SIP will work wonders for you. Once you have planned your investment structure and invested in regular intervals – you will have yourself a solid and secure source of passive income. 

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Scope of Fundamental Analysis

Fundamental analysis is used by the majority of investors in the stock market. As said it is highly beneficial when it comes to long term predictions. Many of these investors make their portfolios according to fundamental analysis. 

How to do Fundamental Analysis?

Performing a fundamental analysis is long, time-consuming, and complex. You need to be crystal clear on your basics, and you need accurate data related to the company – both of them are difficult to achieve. Being clear with the basics is something that The Thought Tree can help you with. They have the best fundamental analysis course, and a practical exposure and a strict and to-the-point curriculum taught by more than qualified teachers.

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The first thing in fundamental analysis is gathering the data per your requirements. All the current and past financial reports and all the news and rumours surrounding the company and the management.

Once you have all the corresponding data – start the analysis. After the analysis, you will get a lot of ratios, which will help you understand the company’s position; and get the company’s intrinsic value.

This intrinsic value you will use to determine whether the stock is overvalued or under-valued.

This is one of the benefits of using fundamental analysis. The ratios are used to determine the company’s financial position with respect to the industry average and its competitors.

What are the Types of Fundamental Analysis?

There are many ways to evaluate the intrinsic value of any company. One of the most common ways is the DCF approach, i.e., Discounted Cash Flow approach. In this approach – the analyst bases the evaluation of the investments on its expected future cash flows.

Another method is Market Capitalization. In this approach, the analyst evaluates the absolute value of the firm with respect to the market. Another version is relative evaluation, wherein the analyst uses multiples, ratios, and many other tools to find out the relative value of the firm (with respect to its competitors). As mentioned, important ratios are compared to the industry benchmarks to evaluate the company’s position.

You might not get an article like this anywhere, and this article will help you make your future more secure and safe financially. Not many people will tell you to fuse SIP with your portfolio, which you will make after the fundamental analysis process. So, keeping that in mind – we hope you will heed these suggestions and also, The Thought Tree is a terrific place to complete your stock market tutorial.

We hope that you’ve found this article valuable when it comes to learning how to calculate shareholders’ equity. If you’re interested in learning more, please subscribe below to get alerted of new articles as we write them!


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