Introduction and how to perform Fundamental Analysis of Stocks
Fundamental Analysis of Stocks is a method which is employed to determine the value of a stock. In the fundamental analysis, the industry to which the stock is related is analyzed. Analyzing the financial statements of the corporation is the way to do. This approach usually looks at the overall health of the economy in which that industry is operating. In the fundamental analysis of stocks, there are again two approaches used to analyze the industry under study. One approach is zoomed in or top down analysis and the other is known as zoom out or bottom-up analysis. This analysis should not be mixed with technical analysis or quantitative analysis.
Fundamental Analysis of stocks is based on the assumption that markets do not reflect all the available information on the stock prices of different companies. For that matter, there must be corrected seen in each of these stocks after some time and whosoever positions himself in time would get benefit from that correction. Top down or zoom in approach mainly focuses first on the national or international economies health. Then they relate economic performance with that of the industry and then they go to the specifics of the firm under consideration. For the bottom-up method, the approach is totally inverse to that of the top-down approach. In this method, the analyst starts from the firm (no matter how small is the size of the firm) and goes up to study the industry and the economic factors that are affecting the firms’ performance.