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Understanding fundamental analysis of stocks

Understanding fundamental analysis of stocks
Highlights

To earn good profits in stock market you need to invest in the stocks of right companies When one has to invest in equities the investor might be confused as to which is the right stock to pick

To earn good profits in stock market you need to invest in the stocks of right companies. When one has to invest in equities the investor might be confused as to which is the right stock to pick.

At this juncture fundamental analysis of the company comes handy and eases the pressure of selecting the right stock. Fundamental Analysis is used to make long term investments.

One needs to invest in a stock which has strong fundamentals. Over the long term, the stock prices of a fundamentally strong company tend to appreciate, thereby creating wealth for its investors.

Fundamental analysis is reflected in

  • Balance sheet
  • Income statement
  • Cash flow statement

Balance sheet lists the assets, liabilities and owner’s equity. If the assets of the company are increasing steadily then it is the right stock to invest. Wherein liabilities include the loans to be repaid or it shows any property which is mortgaged. And owner’s equity is the capital which it has raised through the issue of shares.

In income statement, the revenue minus expenses gives net income of the company. This net income is distributed partly as dividend and partly in acquiring more assets and part of it is kept as its cash position to be utilised when the company is in loss.

Cash flow statement is a very important financial statement, as it reveals how much cash the company is generating. This cash is reinvested in other companies which brings it more earnings. Now let us know, from where we gather the above information.

It can be obtained from the company’s website, moneycontrol.com, economictimes.com, BSE India.com, among others. Hope the above information has cleared the air of confusion surrounding the selection of the stock.

Therefore, you can imagine the magnitude and the speed at which wealth is created if one would invest in fundamentally strong companies. (The author is a homemaker who dabbles in stock market investments in free time)

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