How to Do A Fundamental Analysis of Stocks

Valuation of the share or fundamental analysis of stocks and some other technical terms are the words by which a common man very fearful of.

 They think that it is an expert’s work we can’t do it properly. Now I will share with you some basics of fundamental analysis of stocks so that you also can pick a good stock & in the end you will know that how easy it is and how can you learn it step by step. And very soon you will become a fundamental analyst😊.

Let’s dive in but before we will talk a little bit. Tell me if you want to buy a car, Is it necessary for you to be an automobile engineer? If you want to buy a house, Is it necessary for you to be a civil engineer? Then why we think that if you want to buy a share we have to be a CA, CFA or MBA in finance? This is only a myth spread by some people so that you can’t be independent.

Discounted cash flow, equity analysis, fundamental analysis of stocks there are some word s which look very complicated to hear but you will be amazed that each one of us does fundamental analysis many times in a day doesn’t matter what are you doing.

We do it while watching a movie, hearing songs, watching cricket or football. We do fundamental analysis every time unknowingly.

Fundamental Analysis in General Life:

Let’s take the example of cricket. Why everyone talk about Virat Kohli, why everyone likes Virat Kohli? Let me share you some reasons-

  1. His past track record is very good
  2. He is currently in good form
  3. He has made lots of run in all format of cricket beat one-day beat test match beat T20
  4. His strick run-rate is very good

So each time he is in the crease so many people especially Indian cricket fans have so much hope with him.

Why so many people hope?

Because when we analyze we found that he has good recent form, oast track record, good stick & so many things come in the picture.

These things help us to get a conclusion that this is the player who can win the Indian team.

So, guys, this is a fundamental analysis. Fundamental analysis of the player.

What is Fundamental Analysis:

It is just an analysis of past track record of the company, current track record of the company/ how the company is performing in the present time, see the history of the company & assume that how will company will do better in the future.

In a simple way- If the company has done well in past also doing good in the present then there are many chances that the company will do better in the future.

If you are still afraid of fundamental analysis of stocks then you just focus on 3 things which I will try to explain to you in a simple manner.

1. Profit & Loss(P&L):

Profit & Loss is one of the most important things you have to look at a company. P&L tells us that in the last 1 year how much company sells & how much profit that company got. How much profit the company gets from its turnover.

2. Balance Sheet:

Another important point is the balance sheet. It tells u that from when the company starts how much money they earned. Where they invested their money, What they buy and what that company has in the present time.

Means balance sheet is the complete picture of that company from when they started to the present day.

3. Cashflow:

A cash flow analysis is another important aspect of the fundamental analysis of stocks that you shouldn’t ignore.

Cashflow is usually a deeper analysis of that company. Cashflow analysis tells us that the profit that the company makes them get that profit in cash or not. The money they have Is the actual profit or they took a loan?

First, you should do P&L & balance sheet analysis then you should dive in cash flow analysis. Because it is a deeper level analysis.

There is the same process everyone does. The same process is done by Owners during IPL player selection. When you choose which movie to watch & in everything including shopping.

But if it is a fundamental analysis then what is technical analysis?

Technical analysis basically tracks the movement of the stock. It tracks past movement & present movement.

Technical analysis is for traders who don’t want to invest in a stock for a longer time frame.

If you want to invest in stock(company) for a longer time frame let’s assume 10-15 years then you should choose fundamental analysis of stocks over technical analysis. Because this is what matters in investing and which all successful investors also do.

Now there is a step by step overview of fundamental analysis of stocks so that it can be more simple for you to understand.

Step 1

Sales & Profit Track Record:

If you have chosen a company to invest then the first step of the fundamental analysis of stocks is t see their sales & profit track record. You have to see their sales & Profit track record. You have to analyze that is company’s product selling or not & most important is the company in profit or not?

If sales & profit both are increasing then this is a good company.

Step 2

Turnover of the Company/ No. of Employees:

Another step is to identify the turnover of that company. How many employees are working in that company? Is company turnover is in crores or in lakhs? Are they have many employees or a few? It will help you to analyze how big that company is.

Step 3

Price of the Share:

The price of the share is another step in the fundamental analysis of stocks. Usually, people do mistakes on the price of the share. On behalf of the price, they judge the share that is it a cheep or a costly?

 But you shouldn’t do this. You should look at the turnover as well as the sales & profit of the company.

Step 4

Competitor Analysis:

While analyzing any stock you should look at their competitor too. If you are analyzing MRF Tyre you should also look at CEAT Tyre or Apollo Tyre. If you are analyzing YES Bank then you should also look at ICICI Bank or HDFC Bank. Look what they are doing? What is their competitive advantage?

Step 5

Legal Analysis:

You also check their legal issues. Is there any legal issue happening with the company? Is their management or promoters have any legal issues?

Step 6

Growth Possibilities:

Another important step to analyze their growth possibilities. Whatis the future of the company? Is the company is making a product that has future demand or not? What are the chances of the growth of that company?


Valuation Analysis:

When you are analyzing stock you must analyze many other stocks in their respective sector. If you have chosen YES Bank you must analyze other stocks in the banking sector.

Check if there is any other company with the same profitability, future growth in that sector. Which share is available at cheap price.

So there is a step by step overview of fundamental analysis of stocks. I hope you like the article. Tell me in the comments if you like this. Until next time…Take care, Goodbye😊

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