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Introduction to Fundamental Analysis

What is Fundamental Analysis?

Fundamental analysis is the most commonly used method of analysis in which a company is evaluated based on its financial status. Along with the company’s financials, broader economic and industry health is also factored in.

In this process, the three primary financial statements, namely Balance Sheet, P&L Statement, and Statement of Cash Flow, are inspected in depth. Information on profit, revenues, and expenses are then used to calculate financial ratios.

Using this, analysts compute the stock’s intrinsic value (the right price it warrants). If the stock is trading below the intrinsic value, it is undervalued, otherwise, it is overvalued. And it is fairly valued if the current price is equal to this value. Now that you know one way of analyzing an investment opportunity, can you guess the next one?

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