Fundamental analysis is a common method of analysis that attempts to determine the value of a security. Here are the basics of fundamental analysis and how it is used.

Fundamental Analysis

Fundamental analysis is a process that involves looking at many different factors in order to try to determine a value for a particular investment. Those that use fundamental analysis hold the view that the price of a security can be impacted by many different determinations. This type of analysis works in contrast to technical analysis.

How It Is Used

Many people use fundamental analysis when investing in the stock market. These individuals will look at the financial statements that are released by companies. They will check for certain aspects within the financial statements that can give them an indication of the value of that company. They will use metrics such as price-to-sales ratio and price-earnings ratio to determine if a company is valued appropriately.

Those that utilize fundamental analysis will look at company factors, as well as economic factors. They will look at the performance of the economy and the sector as a whole when evaluating a company. Ultimately, they are trying to find investments that are trading at less than their actual value. 

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