Don't Rush In, Check The Fundamentals!

Fundamental analysis is used to determine whether such share purchase is logical and worth your money. The main objective is to find the worth of a company. 

When you are ready to purchase a stock, you should be able to give logical reasons why you have decided to purchase such stock. There are two parts to stock analysis: Technical analysis and fundamental analysis. 

Technical analysis summarizes how the market affects the movement and the value of the stock. We would talk more about technical analysis in a follow up-article.

Fundamental analysis is used to determine whether such share purchase is logical and worth your money. The main objective is to find the worth of a company. Even if you have zero financial background, nothing stops you from becoming your own stock research guru. 

Fundamental analysis is the art of using historical and solid information about a company to try to find the real value of its stock. It is the process of looking at a business at the basic or fundamental financial level and determining its financial health to have an idea of its true value. 

Even if you do not plan to do an in-depth fundamental analysis yourself, it will help you follow stocks more closely if you understand the key ratios and terms associated with the research. 

It is wise to be guided by facts of fundamental analysis, rather than just using your gut feelings to make such decisions. 

Before you begin to analyze public companies for their investment potential, you will need to understand some business basics, particularly those relating to the company's financial statements. The statements are the main pointers which help one analyze the company’s overall health.

There are three parts to a financial statement: The income statement, balance sheet, and statement of cash flows. 

The Income Statement- This helps you know if the company is doing well. By learning to read an income statement and how gross income and gross margin are calculated, you get a better understanding of the health of the company.

Balance Sheet - This reflects its assets, liabilities, retained equities, and more. Before you invest, be sure you understand these critical terms and what they reveal about the financial health of your potential investment.

Cash Flow Statements - The company's operating cash flow is critical to survival. You will need a deep understanding of what a cash flow statement reveals and what it doesn't to be able to identify potential opportunities for growth.

No matter which approach you take, it is important to do your homework. Take your time to learn everything you can about your chosen method and chosen stock. The investors who are the most successful tend to take a very systemic approach to the markets, using a specific strategy they understand completely and follow precisely.