How to Perform Fundamental Analysis of Stocks

Fundamental Analysis of Stocks
Fundamental Analysis of Stocks

How to Perform Fundamental Analysis of Stocks

Fundamental analysis of a stock is used to assess a company’s financial and operational health. If you’re looking to make a long-term investment, it’s usually a good idea to conduct thorough fundamental research of the stock beforehand.

If you’re in the market, you’ve probably heard of the term ‘technical analysis.’ Technical analysis is an excellent way to determine when to enter and exit a stock for intraday or short-term trading. We’ll look at graphs, trends, and patterns in this section. Using several technical indicators effectively, you can make good gains. Fundamental analysis, on the other hand, is the instrument to use if you want to uncover a multi-bagger stock to invest in that will provide you good returns year after year.

This is because you need to stay invested in a stock for a long time to earn multiple times returns (say 5x or 10x). While technical indicators will indicate an exit in the near term whenever there is a slump or minor setbacks, you must stay invested in that stock if the company is fundamentally sound. You must be certain that the stock will continue to expand and provide strong returns in the future to avoid short-term underperformance. Short-term market changes, unavoidable causes, or mishaps will have no long-term impact on the fundamentals of a great organization.

We’ll go over how to undertake fundamental analysis on equities in this piece. Here, we’ll go through a few rules that, if followed religiously, will allow you to pick fundamentally sound organizations with ease.

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What is fundamental analysis of stocks and how does it apply to stocks ?

Here are the six actions you must take to examine a company’s fundamentals in the Indian stock market. They are really simple to use but quite successful in locating fundamentally strong businesses. Here’s how it goes:

Step 1: Perform the first screening using financial ratios.

The Indian stock exchange has around 5,500 stocks listed. It could take years to read all of these companies’ financial statements (balance sheet, profit-loss statement, etc.). Most companies’ annual reports are between 200 and 300 pages long. It’s also not worth your time to read every single company’s annual report. Shortlisting a few good companies based on a few criteria is a superior method. Then you’ll have to go through each of the screened companies one by one to find the one that best fits your needs.

Various financial factors such as Price to Earnings (PE) ratio, Price to Book Value (PBV) ratio, ROE, CAGR, Current ratio, Dividend yield, and so on can be used for initial stock screening. You can then utilize financial websites like Trade Brains Screener,,, Tickertape, and others to undertake stock screening using financial ratios.

Step 2: Get to know the business.

The next step is to explore the companies you’ve screened based on the above criteria. You must comprehend the business in which you are investing. Because if you don’t, you won’t be able to tell whether the company is doing well or poorly, whether it is making the right decisions toward its long-term goals, whether its competitors are performing well or poorly in comparison to them, and, most importantly, whether you should buy or sell the stock.

As a result, you must comprehend the business. You should be able to answer questions such as what the company’s products/services are, who is leading the company (founders/promoters), management efficiency, competitors, and so on.

Visiting the company’s website is a simple approach to learn more about it. Check out the ‘ABOUT’, ‘PRODUCTS’, ‘PROMOTERS/BOARD OF DIRECTORS’, and other pages on the company’s website. Read the company’s mission and vision statements. Additionally, if the company’s annual report is available, download and read it. This report will provide in-depth information about the company.

Furthermore, if you can comprehend the company’s products, services, and vision and find it appealing, proceed to the following phase. Otherwise, disregard that firm.

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Step 3: Research the company’s financial results.

After you’ve learned about the company and found it intriguing, you’ll want to look at its financial documents, such as the balance sheet, profit and loss accounts, and cash flow statements.

As a general rule, increasing revenue/sales, net profit, and margin during the last five years are considered a positive sign for the company. After that, you must examine other financials such as operating costs, spending, assets, liabilities, and so on.

Step 4: Examine the Debt and Warning Signs

One of the most important aspects to consider before investing in a stock is the overall debt of the company. If a corporation has a large debt, it will be unable to operate well and reward its stockholders. Before they can do anything further, they must repay the debt and pay interest on the borrowed funds. In a nutshell, stay away from companies that have a lot of debt.

Invest in companies with a debt/equity ratio of less than one as a rule of thumb. This ratio can be used in the first screening of equities or while examining a company’s financial statements.

Other warning signals in the corporation could include a consistently dropping profit/margin, inadequate liquidity, and stock pledging.

Step 5: Research the firm’s competitors

Before investing, it’s generally a good idea to research a company’s competitors. Determine what this company does differently than its competitors.

You should also be able to explain why you are investing in this company rather than one of its competitors. Unique selling point (USP), competitive advantage, low-cost items, Brand Value, future possibilities (upcoming projects, new plant), and so on should all be included in the answer.

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Step 6: Examine your chances for the future

The majority of good investments are focused on the company’s prospects/potential rather than its current state. Investors want to know how much money they can make in the future from their investments. As a result, always invest in a firm that has a bright future. Only invest in companies whose products or services will continue to be used in twenty years.

Furthermore, there is little purpose in investing in a CD or pen-drive manufacturing company that has no long-term potential (say, ten years from now). Because cloud drives are evolving at such a rapid pace, these items will become obsolete over time.

If you’re looking to make a long-term investment, the company’s product’s lengthy life is a must-check factor. Check prospects, expansion opportunities, prospective revenue sources in the future, and so on.


Fundamental Analysis of Stocks is a time-tested and reliable approach to identifying solid firms for long-term investment. We spoke about how to perform fundamental analysis on equities in this post.

The following are the six phases to performing fundamental analysis on equities, as described in this article: 1) Perform a first screening using financial ratios. 2)Get to know the business. 3) Examine the company’s financial statements. 4) Examine the debt and warning signals. 5) Research the company’s rivals. 6) Examine your chances for the future



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