Fundamental Analysis is the method by which we determine the strength or weakness of a company compared to its competitors. Once we have mastered Fundamental Analysis we can sort the strongest to the weakest company in each sector and place long positions on the strongest companies and short positions on the weakest companies.

Fundamental analysis is the process by which we assess a company's Financial Strength by:

Analysing financial figures

Assessing future outlook

Assessing the growth of the company

Fundamental analysis gives us a indication of whether the company is strong or weak compared to its rivals. Fundamentals help us do the following;

Enable us to sort weak companies from strong.

Assess the resilience of a company against market dynamics.

Take a long term view on a companys performance.

Fundametal Analysis of stocks looks at different measures to determine financial strength, these measures can sometimes be exhaustive but the most frequently used ones are as follows.

Company Profile/Market Capitalisation

Financial History/Main Activities

Annual Growth/Quarterly Growth

Recent Significant news on the company

Analyst Ratings

The company profile gives us a way to understand the nature
of the company and how the company is operating

Which area is the business involved in?

What do they actually do?

How much is the company worth in monetary terms?

How does it compare amongst its competitors?

What is the vision/direction of management?

The main activities of a company tells us the following, the imprtance of knowing these activities is to make sure that you are not potentially entering any pit falls and you are aware where the company may have a weakness

What is the core business of the Company?

What recent activities has the Company been involved in?

Which regions does the Company operate in?

What new plans do they have in the pipeline?

Which areas are they looking to exploit in the future.

The financial history of the company shows how well the company has performed over a period of time. We can there compare this from last years financials and see if there is a improvement or whether there has been a fall in profit. We also need this data so that we can compare it with its pears.

What has the company made in revenue/profits in the last year/quarter?

What is the annual/quarterly growth?

What is the company expecting to make?

What has the company forecasted for the future?

Recent news give us an opportunity to find out what the company has been involved in recently and what there future proposals are.

Is there a new product/Service being launched?

Is there a new management team in place?

Has the company been upgraded by analysts?

What is the significance of this news?

How has the price been effected?

Has the price been effected positively or not.

Major banks such as Morgan Stanley and Goldman Sachs evaluate the financials strength of a company and give it a particular rating, these ratings have a significant effect on the price of a stock.

Has the company been upgraded/downgraded?

What is the general mood of analysts regarding this company.

What is the target price the companies have placed on this stock.

Every company has competitors competing for the same business. Knowing how the competition is performing is imperative for knowing which company will be successful compared with others.

Who are the main competitors for the company.

What position is the company compared to its competitors

Is there anything that differentiates their product services from the rest.

Are their products superior/Inferior to the competition.

That concludes the first part of our discussion on Fundamental Analysis, Please go to the second part of Fundamental Analysis for the conclusion.