Fundamental Analysis

Quantitative Analysis

Quantitative fundamental analysis is a method of evaluating a company's financial health and valuation by analyzing quantitative data, such as financial statements, historical market trends, and economic indicators.

A commonly used technique in quantitative fundamental analysis is ratio analysis. This involves analyzing key financial ratios such as the:

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• price-to-earnings (P/E) ratio,

• price-to-book ratio (P/B ratio),

• price-to-sales (P/S) ratio,

• debt-to-equity ratio

Qualitative Analysis

Qualitative fundamental analysis involves evaluating a company’s strategic direction and long-term potential by examining non-financial factors such as a company’s industry position, business model, competitive advantage, and management quality.

A popular technique used in qualitative analysis is known as SWOT analysis.  SWOT stands for:

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• Strengths

• Weaknesses

• Opportunities

• Threats

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The basics of Fundamental Analysis?

Economic Environment

Look at issues such as interest rates, inflation, and changes in GDP within a country.

Industry Analysis

Understand how the industry operates including its competitors and relevant laws.

Financial Statements

These elements can be located on the income statement, balance sheet, and cash flow statement of any business and they include revenue, profit margin and debt ratio.

Valuation Ratios

A number of metrics like P/E ratio, P/B ratio or P/S ratio, for instance, can be used to establish whether a stock is underpriced or overpriced.

Management Quality

Study about their historical management results; and how they’ve handled corporate governance so far; interactions between them and shareholders must also be investigated so as to determine the quality of management in a given place.

Macroeconomic Trends

Other factors you might consider include stability in geopolitics and general global economic trends.

Qualitative Factors

Consider aspects such as customer loyalty ratings (brand recognition), non-quantifiable competitive advantages, etc.

Risk Assessment

When making an investment decision it is necessary to recognize risk. Some risks may be industry-related whereas others could be peculiar to certain companies.