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Beat the market: Your ultimate guide for fundamental analysis tools

Stay ahead of the curve: Tired of trailing behind the market? We’ve got your ultimate cheat sheet.

The Bombay Stock Exchange lists 5289 companies. How do you choose stocks to invest in? Technical and fundamental analysis are key decision-making tools.

Technical analysis uses historical price and volume data to predict stock movement. 

The intrinsic value of a company is assessed in fundamental analysis in investment management. You analyse the company’s finances, management, and industry position. A healthy company may be a good investment.

Fundamental analysis meaning

Fundamental analysis aims to determine stock value. Find out if the market overvalued or undervalued a stock. Thus, a higher intrinsic value than the market price suggests buying. Lower prices may indicate a better time to sell or avoid the stock.

The analysis uses top-down or bottom-up methods. Macroeconomic indicators like global and national economic conditions are evaluated first in a top-down approach. Before examining companies, the analysis narrows to industries.


Quantitative data includes financial statement numbers like earnings, revenue, and liabilities. Qualitative data includes non-numerical factors like management effectiveness, competitive positioning, and market share.

Fundamental analysis gives investors a complete picture of a company’s health and prospects. A thorough analysis can determine if the stock price reflects the company’s true value and whether it’s a good investment.

Understanding quantitative analysis

Quantitative analysis is often compared to a company’s financial health checkup in fundamental analysis. Business performance is measured using hard numbers in this method.

When people say a company “has good numbers,” they mean quantitative analysis results. These numbers can be obtained using fundamental analysis tools, which provide clear investment guidance.

Fundamental analysis tools

Online data for quantitative analysis is easy to find. It’s no wonder experts and everyday investors use this method.

Commonly used fundamental analysis tools:

  • Financial statements 
  • Earnings 
  • Financial ratios 

Financial statements

  1. Balance sheet: This report offers a brief overview of a business’s financial state at a certain period, capturing assets, liabilities, and shareholders’ equity. The key equation is Assets = Liabilities + Shareholders’ Equity. A strong balance sheet typically shows assets exceeding liabilities, signalling good financial health.
  2. Income statement: This statement offers insights into a company’s profitability over a certain period, usually a quarter or a year. It details revenue, expenses, and, ultimately, net income. Consistent growth in net income is a positive sign, while erratic or declining profits warrant further analysis.
  3. Cash flow statement: This focuses on cash transactions over a period, categorised into operating, investing, and financing activities. It is a solid indicator of a company’s liquidity as it only considers actual cash inflows and outflows.

Reading these statements will reveal a company’s finances. Each statement reveals something different, but their interaction is most insightful.


  1. Quarterly earnings: Publicly traded companies release quarterly earnings reports, offering insights into short-term performance. Analysing these reports can provide a snapshot of current business conditions and operational effectiveness.
  2. Projected earnings: These are future earnings estimates derived by extrapolating current financial data. While these projections are subject to market risks, they offer valuable foresight into a company’s growth trajectory.

Companies with strong and consistent earnings are the investment gold standard. Strong earnings often reduce borrowing needs and increase investor interest, raising stock prices. Thus, earnings analysis aids investment decisions.

Financial ratios

Earnings per share (EPS)

It represents a portion of a company’s profit allocated per outstanding share of common stock. It’s calculated using the formula:

EPS = Net income /  Total outstanding shares 

For instance, if Company A registers a net income of Rs. 5 crores with 10 lakh outstanding shares, its EPS would be Rs. 50. 

An investor can compare this to other companies within the same industry to make informed decisions. Remember, a higher EPS usually signals more profit, but the context is key.

Price-to-earnings (P/E) ratio

It tells the amount investors are ready to pay for a company’s earnings. 

P/E = Stock price​ / EPS

Suppose a company’s share price is Rs. 500, and its EPS is Rs. 50. The P/E ratio is 10. A lower P/E ratio usually indicates a stock is undervalued, making it an attractive investment and vice versa. 

P/E ratio of Reliance Industries Ltd. for the last 5 years

Return on equity (ROE)

It shows how successfully a business is generating profit from shareholders’ equity.

ROE = Net income​/ Shareholders′ equity

If company C generates Rs. 2 crores in profits with shareholders’ equity standing at Rs. 20 crores, the ROE would be 10%. Comparing a company’s ROE to others in the same industry is essential for an accurate evaluation.

Price-to-book (P/B) ratio

This ratio assesses a stock’s valuation by contrasting its market value to book value.

P/B = Market price per share​/ Book value per share

For example, if the last closing price of a stock is Rs. 100 and its book value per share is Rs. 80, the P/B ratio is 1.25. A P/B ratio below 1 generally signifies that the stock is undervalued.


Monitoring a stock’s health and making smart investments requires fundamental analysis skills. Even without a full analysis, these tools help you decide when to buy, hold, or sell a stock based on its value versus its market price.


Which is the best app for fundamental analysis in India?

The Earnings per Share (EPS) is often considered the best indicator for fundamental analysis. It represents the portion of a company’s profit allocated to each outstanding share of common stock, providing a direct measure of its profitability.

What indicator do most traders use?

The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) are commonly used by traders. These indicators help gauge market momentum and identify potential points of price reversal, providing valuable insights for trading decisions.

Does fundamental analysis really work?

Yes, fundamental analysis can work effectively. It allows investors to evaluate a security’s intrinsic value by examining related economic and financial factors. This method can help in making informed investment decisions, although its effectiveness may vary with market conditions.

Which indicator is faster than MACD?

The Relative Strength Index (RSI) and shorter Exponential Moving Averages (EMAs) are often considered faster than MACD. These indicators can provide quicker signals for trading decisions, depending on the settings, timeframe, and specific strategies used.

How to learn fundamental analysis?

Learning fundamental analysis involves studying financial statements, understanding key ratios, and gaining knowledge of the industry and economic conditions. Resources include online tutorials, books, blogs, mobile applications, and various online financial learning providing platforms.

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