In the financial market, there are different forms of active studies, and the concept that one has about what is fundamental analysis is perhaps the one that is most important, the most debated among investors.
This shows that perfectly understanding what fundamental analysis is about is a basic and indispensable duty for all those who want to obtain more consistent results in investments that are carried out in the long term.
Fundamental analysis is defined as a method of evaluating a financial asset that aims to try to measure its intrinsic value, examining the economic, financial and other factors that qualify and quantify the process.
Importantly, some investors at this school of investing, nominated by the greatest investor of all time, Warren Buffett, typically study anything that could affect asset value, including macroeconomic factors, global economy and industry conditions, microeconomic factors , such as financial conditions and also the management of the company.
With this, analyzing stocks to make an investment will always be the great challenge for any investor. And for that, investors have two different approaches, but which are widely used: technical analysis and fundamental analysis.
Technical analysis, in a very simple way of definition, is the study of market movements, mainly through the use of charts, which aims to predict future trends in price.
But what we really want to talk about today is fundamental analysis and how it works. So stick around and you will know everything about fundamental analysis.
What is fundamental analysis?
Fundamental analysis is the main tool used to understand and study the economic and financial foundations of a company. This means that fundamental analysis serves to help investors assess the financial and operational health of a company and, with that, define what is interesting to invest money or not, in its shares traded on the stock exchange.
Through fundamental analysis it is possible to visualize the entire structure of the company, understanding how the factors that affect the company's performance and, consequently, the value of its shares are.
Fundamental analysis aims to show the reality of what the company is like from the inside.
What is fundamental analysis for?
When you use fundamental analysis, you can set a fair price for the stocks being analyzed. This makes for a great advantage, since the shares have prices that are often negotiated at values very different from the company's fundamentals.
With that, they can be:
Overvaluing, which is when you should sell the stock;
Undervaluing, which is when you should buy the stock.
That's why a well-done fundamental analysis can yield great investment opportunities, making your money multiply.
And it was through this way that great investors managed to build their fortunes, achieving great success in the financial market.
And there's more: fundamental analysis is able to provide investors with an excellent tool for comparing competitors or companies in the same sector, which helps to define which is more worth receiving the investment.
How is fundamental analysis done?
Much of the most important information in carrying out fundamental analysis is found in the financial statements of the company that will be analyzed. Through them, it is possible to define a panorama that shows the real situation of the company, taking into account its profitability, liquidity, indebtedness, activity, return for the shareholder, among other issues.
When analyzing the company's numbers, the next step is the macroeconomic analysis. It contains the perspectives for macroeconomic indices, such as inflation, interest rates, exchange rates, among others, and the impact that these indices will have on the company's operations.
A company in debt, for example, having an interest rate reduction is something that will have a positive impact. For a company that exports, the exchange rate movement tends to be more interesting.
After performing the quantitative fundamentals analysis, the next step is qualitative fundamentals. It is at this time that the list of relevant shareholders, the executive board and the company's board are verified, as well as its history of performance in the management of a company in the sector.
Another thing that is very important is the market position that the company has, since monopoly companies have a greater protection of their market share and this helps in presenting more consistent returns.
Finally, the positioning of the company's main brands and the vision of its customers is also a relevant qualitative criterion in the analysis.
Fundamental analysis is a tool suitable for those who invest in stocks and who have a long-term purpose.
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