"How Fundamental Analysis is Like Uncovering the Layers of an Onion!"

FUNDAMENTAL ANALYSIS

Fundamental analysis is a method used in accounting and finance to analyze a business's financial statements, its competitors, and the market to determine its health. It considers factors such as interest rates, employment, and management. The analysis can be performed using either a bottom-up or top-down approach. Its objectives can include stock valuation, performance projection, risk evaluation, and determining intrinsic share value. The analysis uses historical and present data to make financial forecasts.

THE BATTLE OF FINANCIAL MODELS

Investors use two methodologies to determine what stock to buy and at what price: fundamental analysis and technical analysis. Fundamental analysis looks at economic, industry, and company analysis to determine the intrinsic value of a share. If the intrinsic value is higher than the market price, buying is recommended, if it's equal, holding is recommended, and if it's lower, selling is recommended. Technical analysis, on the other hand, looks at trends and price levels to predict future price movements. Investors may use one or both methods, and their choice is determined by their belief in different paradigms of how the stock market works, such as the efficient-market hypothesis, random walk hypothesis, and behavioural finance.

THE TWO METHODS OF FUNDAMENTAL ANALYSIS

Investors using fundamental analysis can take either a top-down or bottom-up approach. The top-down approach starts with global economics and narrows the search to regional/industry analysis before refining it to the best business in the area being studied. The bottom-up approach, on the other hand, starts with specific businesses regardless of industry/region and works in reverse to the top-down approach. Both approaches are used to analyze a business's financial statements, health, competitors, and markets, as well as overall economic factors, to make financial forecasts and determine the intrinsic value of a share.