what is fundamental analysis

Fundamental analysis is a method used to evaluate the intrinsic value of a security, such as a stock, by examining various financial and economic factors. It involves analyzing a company's financial statements—such as income statements, balance sheets, and cash flow statements—along with broader macroeconomic indicators like gross domestic product (GDP), inflation, and interest rates. The goal is to determine the true worth of the company, beyond just the current market price. This approach looks at the company's assets, debts, revenue, profit margins, industry position, management effectiveness, and potential for growth and profitability. By assessing these metrics, investors can decide whether a stock is undervalued, fairly valued, or overvalued, which helps them make informed decisions to buy, hold, or sell. Fundamental analysis contrasts with technical analysis, which focuses on price trends and market sentiment rather than intrinsic value. Many investors combine both approaches for a comprehensive investment strategy. In essence, fundamental analysis helps investors focus on the long-term financial health and growth prospects of a company, rather than short-term price fluctuations or market noise.