{"id":9804,"date":"2025-06-04T19:31:51","date_gmt":"2025-06-04T14:01:51","guid":{"rendered":"https:\/\/www.tickertape.in\/blog\/?p=9804"},"modified":"2025-06-04T19:31:53","modified_gmt":"2025-06-04T14:01:53","slug":"a-step-by-step-guide-to-fundamental-analysis","status":"publish","type":"post","link":"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/","title":{"rendered":"A Step-By-Step Guide to Fundamental Analysis"},"content":{"rendered":"\n<p><a href=\"https:\/\/www.tickertape.in\/blog\/fundamental-analysis-of-stocks\/\">Fundamental analysis<\/a> is a holistic approach to understanding and studying a business. It helps in determining fundamentally strong companies. When you are planning to <a href=\"https:\/\/www.tickertape.in\/blog\/why-should-you-prioritise-investing\/\">invest<\/a> in a company for the long term, you must study it from various perspectives. Fundamental analysis also helps you determine a stock\u2019s fair <a href=\"https:\/\/www.tickertape.in\/blog\/market-value\/\">market value<\/a>. But how? Let\u2019s find out.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_66_1 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title \" >Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#What-is-Fundamental-Analysis\" title=\"What is Fundamental Analysis?\">What is Fundamental Analysis?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Importance-of-Fundamental-Analysis\" title=\"Importance of Fundamental Analysis\">Importance of Fundamental Analysis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Types-of-Fundamental-Analysis\" title=\"Types of Fundamental Analysis\">Types of Fundamental Analysis<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Qualitative-analysis\" title=\"Qualitative analysis\">Qualitative analysis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Quantitative-analysis\" title=\"Quantitative analysis\">Quantitative analysis<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Difference-Between-Fundamental-Analysis-and-Technical-Analysis\" title=\"Difference Between Fundamental Analysis and Technical Analysis\">Difference Between Fundamental Analysis and Technical Analysis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Pros-of-Fundamental-Analysis\" title=\"Pros of Fundamental Analysis\">Pros of Fundamental Analysis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Cons-of-Fundamental-Analysis\" title=\"Cons of Fundamental Analysis\">Cons of Fundamental Analysis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Who-uses-Fundamental-Analysis\" title=\"Who uses Fundamental Analysis?\">Who uses Fundamental Analysis?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Fundamental-Analysis-Methodology\" title=\"Fundamental Analysis Methodology\">Fundamental Analysis Methodology<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Qualitative-analysis-2\" title=\"Qualitative analysis\">Qualitative analysis<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Quantitative-analysis-2\" title=\"Quantitative analysis\">Quantitative analysis<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Check-financial-statements\" title=\"Check financial statements\">Check financial statements<\/a><ul class='ez-toc-list-level-5' ><li class='ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#1-Profit-and-loss-statement\" title=\"1. Profit and loss statement &nbsp;\">1. Profit and loss statement &nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#2-Balance-Sheet\" title=\"2. Balance Sheet&nbsp;\">2. Balance Sheet&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#3-Cash-flow-Statement\" title=\"3. Cash-flow Statement\">3. Cash-flow Statement<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Annual-Report-and-Investors-Presentation\" title=\"Annual Report and Investors\u2019 Presentation\">Annual Report and Investors\u2019 Presentation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Growth-over-the-period-of-3-and-5-yrs\" title=\"Growth over the period of 3 and 5 yrs\">Growth over the period of 3 and 5 yrs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Financial-ratios\" title=\"Financial ratios\">Financial ratios<\/a><ul class='ez-toc-list-level-5' ><li class='ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-20\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#A-Profitability-ratios\" title=\"A. Profitability ratios&nbsp;\">A. Profitability ratios&nbsp;<\/a><ul class='ez-toc-list-level-6' ><li class='ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-21\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#1-PAT-margin\" title=\"1. PAT margin\">1. PAT margin<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-22\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#2-Return-on-Equity-ROE\" title=\"2. Return on Equity (ROE)\">2. Return on Equity (ROE)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-23\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#3-Return-on-Assets-ROA\" title=\"3. Return on Assets (ROA)\">3. Return on Assets (ROA)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-24\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#4-Return-on-Capital-Employed-ROCE\" title=\"4. Return on Capital Employed (ROCE)\">4. Return on Capital Employed (ROCE)<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-25\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#B-Leverage-ratios\" title=\"B. Leverage ratios\">B. Leverage ratios<\/a><ul class='ez-toc-list-level-6' ><li class='ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-26\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#1-Debt-to-equity-ratio\" title=\"1. Debt-to-equity ratio\">1. Debt-to-equity ratio<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-27\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#2-Interest-coverage-ratio\" title=\"2. Interest coverage ratio\">2. Interest coverage ratio<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-28\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#C-Operating-ratios\" title=\"C. Operating ratios\">C. Operating ratios<\/a><ul class='ez-toc-list-level-6' ><li class='ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-29\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#1-Working-capital-turnover\" title=\"1. Working capital turnover\">1. Working capital turnover<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-30\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#2-Total-assets-turnover\" title=\"2. Total assets turnover&nbsp;\">2. Total assets turnover&nbsp;<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-5'><a class=\"ez-toc-link ez-toc-heading-31\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#D-Valuation-ratios\" title=\"D. Valuation ratios\">D. Valuation ratios<\/a><ul class='ez-toc-list-level-6' ><li class='ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-32\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#1-Price-to-Earnings-ratio-PE-ratio\" title=\"1. Price-to-Earnings ratio (P\/E ratio)\">1. Price-to-Earnings ratio (P\/E ratio)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-33\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#2-Price-to-Sales-ratio-PS-ratio\" title=\"2. Price to Sales ratio (P\/S ratio)\">2. Price to Sales ratio (P\/S ratio)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-6'><a class=\"ez-toc-link ez-toc-heading-34\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#3-EVEBITDA-ratio\" title=\"3. EV\/EBITDA ratio\">3. EV\/EBITDA ratio<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-35\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-36\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#Frequently-Asked-Questions-About-Fundamental-Analysis\" title=\"Frequently Asked Questions About Fundamental Analysis\">Frequently Asked Questions About Fundamental Analysis<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-37\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#1-Can-we-use-both-fundamental-and-technical-analysis-of-stocks\" title=\"1. Can we use both fundamental and technical analysis of stocks?\">1. Can we use both fundamental and technical analysis of stocks?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-38\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#2-Should-the-fundamental-analysis-of-stocks-be-used-only-by-the-experts\" title=\"2. Should the fundamental analysis of stocks be used only by the experts?\">2. Should the fundamental analysis of stocks be used only by the experts?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-39\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#3-How-to-do-a-fundamental-analysis-of-stocks\" title=\"3. How to do a fundamental analysis of stocks?\">3. How to do a fundamental analysis of stocks?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-40\" href=\"https:\/\/www.tickertape.in\/blog\/a-step-by-step-guide-to-fundamental-analysis\/#4-How-to-get-a-Tickertape-Pro-membership\" title=\"4. How to get a Tickertape Pro membership?\">4. How to get a Tickertape Pro membership?<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What-is-Fundamental-Analysis\"><\/span>What is Fundamental Analysis?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>It is a method of evaluating the true value of a company or an asset. It does so by analysing the factors that could influence the price in the future. Fundamental analysis is in contrast with <a href=\"https:\/\/www.tickertape.in\/blog\/technical-analysis-of-stocks\/\">technical analysis<\/a>. While fundamental analysis is the company\u2019s financials, external events, influences, and industry trends, technical analysis derives the information from charts. The former is used for long-term investments, while the latter is usually used for trading.<\/p>\n\n\n\n<p><strong>Note: <\/strong>The true value of a company is also known as fair value and <a href=\"https:\/\/www.tickertape.in\/blog\/intrinsic-value-of-shares\/\">intrinsic value<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Importance-of-Fundamental-Analysis\"><\/span>Importance of Fundamental Analysis<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Fundamental analysis helps in determining the fair value of any stock. It also evaluates the health and performance of an organisation with the help of its financials and major economic indicators. Fundamental analysis of stock also helps in understanding the business model of a company, the working ways of the management, and its strengths and weaknesses. You can predict future price movements and determine if the stock is undervalued or overvalued.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Types-of-Fundamental-Analysis\"><\/span>Types of Fundamental Analysis<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Fundamental analysis is divided into two categories:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Qualitative-analysis\"><\/span>Qualitative analysis<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>As the name suggests, qualitative analysis considers the qualitative factors of a company, such as goodwill, demand, consumer behaviour, company recognition in the broader market, competitive analysis, and brand value. It also aims to determine how the management is, the impact of their decisions on the market, and depicts their socio-economic position. Qualitative analysis is usually considered subjective.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Quantitative-analysis\"><\/span>Quantitative analysis<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Quantitative analysis is related to the measurable characteristics of a business. Hence, the biggest source of quantitative analysis is financial statements. Quantitative analysis is about statistics, reports, and data. It considers statements, balance sheets, cash flows, debt, quarterly performance, and many <a href=\"https:\/\/www.tickertape.in\/blog\/financial-ratios\/\">financial ratios<\/a> to understand the company\u2019s overall financial health and determine the share&#8217;s price.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Difference-Between-Fundamental-Analysis-and-Technical-Analysis\"><\/span>Difference Between Fundamental Analysis and Technical Analysis<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Fundamental analysis and technical analysis are far from each other. Let\u2019s understand how.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Points of difference<\/strong><\/td><td><strong>Fundamental analysis&nbsp;<\/strong><\/td><td><strong>Technical analysis<\/strong><\/td><\/tr><tr><td><strong>Meaning<\/strong><\/td><td>It is a detailed examination of the factors that influence the industry, company, financial statements, competition, and more.<\/td><td>It includes the examination of charts for making predictions on the share price. It is data-driven and used to understand the patterns in the share price of a stock.<\/td><\/tr><tr><td><strong>Function<\/strong><\/td><td>Investment-related<\/td><td>Trading-related<\/td><\/tr><tr><td><strong>Time-frame<\/strong><\/td><td>long-term<\/td><td>short-term<\/td><\/tr><tr><td><strong>Objective<\/strong><\/td><td>To identify the true value of the stock<\/td><td>To identify the right time to enter or exit the market<\/td><\/tr><tr><td><strong>Focuses on<\/strong><\/td><td>Both past and present data<\/td><td>Past data only<\/td><\/tr><tr><td><strong>Form of data used<\/strong><\/td><td>Financial statements, economic reports, news events, industry statistics, management processes, etc.<\/td><td>Analysis of charts<\/td><\/tr><tr><td><strong>Methodology<\/strong><\/td><td>Examination of ongoing industry trends, economic outlook, competitor companies\u2019 performance, and financial data.<\/td><td>Examination of the market psychology as well as price movements.<\/td><\/tr><tr><td><strong>Indicators&nbsp;<\/strong><\/td><td>Indicators used are expenses, revenues, assets, liabilities, debt-equity ratio, return on <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-equity\/\">equity<\/a> ratio, and so on.<\/td><td>Indicators used are price data, RSI, <a href=\"https:\/\/www.tickertape.in\/blog\/moving-average-convergence-divergence\/\">MACD<\/a>, simple moving average, etc.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Pros-of-Fundamental-Analysis\"><\/span>Pros of Fundamental Analysis<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul>\n<li>It is useful for the long-term investment approach.<\/li>\n\n\n\n<li>With fundamental analysis, you get information on where and when to invest in generating high earnings over a long-term period.<\/li>\n\n\n\n<li>Fundamental analysis includes both &#8211; qualitative and quantitative analysis. It helps in providing a complete insight into the company\u2019s performance.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Cons-of-Fundamental-Analysis\"><\/span>Cons of Fundamental Analysis<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul>\n<li>It is a time-consuming process which requires multiple areas of analysis, making the process extremely complicated.<\/li>\n\n\n\n<li>The quantitative analysis is subjective because the data is not quantifiable.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who-uses-Fundamental-Analysis\"><\/span>Who uses Fundamental Analysis?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Even though most investors tend to utilise fundamental analysis, the people most likely to use it are:<\/p>\n\n\n\n<ul>\n<li><strong>Value or long-term investors:<\/strong> It helps them find out the underlying value of the stock and growth potential, generate pricing targets, and ascertain whether the stock is worth the price they are paying.<\/li>\n\n\n\n<li><strong>Corporate managers and accountants:<\/strong> They use it to gauge and improve an organisation\u2019s profit-making ability by streamlining its operations. It also helps them understand where they stand against the competition.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Fundamental-Analysis-Methodology\"><\/span>Fundamental Analysis Methodology<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Qualitative-analysis-2\"><\/span>Qualitative analysis<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The first step in fundamental analysis is to analyse the company qualitatively. For this purpose, the answers to the following questions are determined.<\/p>\n\n\n\n<ol>\n<li>How efficient is the company in terms of operations?<\/li>\n\n\n\n<li>What is the quality of its key management personnel?<\/li>\n\n\n\n<li>How does the brand value of a company appear?<\/li>\n\n\n\n<li>Does the company use any exclusive (proprietary) technology?<\/li>\n\n\n\n<li>What socially responsible initiatives is the company undertaking?<\/li>\n\n\n\n<li>What is the company\u2019s vision for the future?<\/li>\n<\/ol>\n\n\n\n<p>After determining the answers to these questions and considering the answers are good, you move on to the next step.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Quantitative-analysis-2\"><\/span>Quantitative analysis<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>There are various factors that are analysed in quantitative analysis. Let\u2019s look at all of them step-by-step.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Check-financial-statements\"><\/span>Check financial statements<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>There are numerous financial statements of a company. However, there are three primary financial statements that a company presents to display its performance.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1-Profit-and-loss-statement\"><\/span>1. Profit and loss statement &nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/lh5.googleusercontent.com\/cKuTpnw-l16wswlznjjyzrXYjpwnMTsTgjmYEJvqdoqydkxzvWCTLhOfClkDjb0of-vN_M7qE_E4V_Z1FWWyhLj6Spt-bMMXVpEENNK9iM6GWgVPdGuzJ1XHP-cJdWDObtEZmSfjm_F4axre5nZ3W28\" alt=\"\"\/><figcaption class=\"wp-element-caption\"><em>P&amp;L statement of ITC on Tickertape<\/em><\/figcaption><\/figure><\/div>\n\n\n<p>The<a href=\"https:\/\/www.tickertape.in\/blog\/how-to-analyse-profit-and-loss-statement\/\"> profit and loss statement<\/a> is commonly referred to as the income statement, P&amp;L statement, operation statement, and earnings statement. It usually consists of &#8211;<\/p>\n\n\n\n<ul>\n<li>The revenue of the company for a certain time period (quarterly or yearly)<\/li>\n\n\n\n<li>Tax and depreciation<\/li>\n\n\n\n<li>The <a href=\"https:\/\/www.tickertape.in\/blog\/earnings-per-share\/\">Earnings Per Share<\/a> (EPS) number<\/li>\n\n\n\n<li>The expenses incurred to generate the revenues<\/li>\n<\/ul>\n\n\n\n<p>It gives you insight into a company&#8217;s profitability and articulates the company\u2019s bottom line. There are various parameters in a P&amp;L statement. Depending on the industry, we measure different parameters. However, the main parameters that we measure for all companies to check the profitability are revenue, Profit Before Interest and Tax (PBIT), and net income.<\/p>\n\n\n\n<p>For a successful company, these three factors should always appreciate. After analysing these three factors, you can also analyse the trend in net profit for the last 5-10 yrs and operating profit to have a deeper understanding of the P&amp;L statement.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2-Balance-Sheet\"><\/span>2. Balance Sheet&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/lh4.googleusercontent.com\/RX5QzmL-RlZYrPc6gMc5-VbFLTOK5DYya-Cqkqn3WzCTxDGBxvEQ3K_ukrY5sm1s9BKBJRUb8Q50iVlrXuFoonUGGKgdHyIdQdsO7OKri5fqC_0BcuZAueKgYlrWIzZ2YL00WdBtdJFl_XQ0400Qn7I\" alt=\"\"\/><figcaption class=\"wp-element-caption\"><em>Balance Sheet of ITC on Tickertape<\/em><\/figcaption><\/figure><\/div>\n\n\n<p>A balance sheet displays a company&#8217;s assets, liabilities, and <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-shareholders-equity-overview-components-and-how-to-calculate\/\">shareholder&#8217;s equity<\/a> at a specific point in time. In a balance sheet, at any point in time, the total assets of a company should always be equal to the company&#8217;s liabilities, including shareholder&#8217;s equity. Hence, the name &#8216;balance sheet&#8217;.<\/p>\n\n\n\n<p>If they are not balanced, there may be some issues, including incorrect or misplaced data, miscalculations, or exchange rate or inventory errors. Hence, in a balance sheet,&nbsp;<\/p>\n\n\n\n<p><strong>Assets = Liabilities + Shareholders\u2019 Equity<\/strong><\/p>\n\n\n\n<p>A balance sheet tells what a company owns, what it owes, and what it is worth as a company. To determine if a company is worth investing in, we look at the total assets and total liabilities of the company.&nbsp;<\/p>\n\n\n\n<p>If a company&#8217;s assets are higher than the liabilities, you can mark the company as &#8216;good for further assessment&#8217;. However, if the liabilities are higher, it is usually considered &#8216;not worth investing&#8217;. For a deeper analysis of the balance sheet, various financial ratios, such as debt to equity ratio, return on equity, etc., are used.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3-Cash-flow-Statement\"><\/span>3. Cash-flow Statement<span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/lh6.googleusercontent.com\/SKZyDmFIJt_PzgMhpizeDXvbns5JNoYLVeqCCnkJi77C-ojJ0ZLNPaZ1wjqbI3HpNJPFY4f3Eb741ay5Oq0PzKzBHb6XLNc5wse_EspHD6x2gAKgHdJYOmZ3mDy7J2zDsncDqkP50OwLcIfMgrdnnu8\" alt=\"\"\/><figcaption class=\"wp-element-caption\"><em>Cash flow statement of ITC<\/em><\/figcaption><\/figure><\/div>\n\n\n<p>A cash flow statement shows the movement of money in and out of business. A cash-flow statement determines a company\u2019s financial health. It helps you in analysing a company\u2019s liquidity. The cash flow statement shows the net change in cash, which is usually divided into cash from operating activities, investing activities and financing activities.&nbsp;<\/p>\n\n\n\n<p>For the analysis purpose, we check the factor \u2018Free Cash Flow\u2019. A positive cash flow indicates that the company\u2019s assets are growing from where they started. In contrast, a negative cash flow indicates otherwise.&nbsp;<\/p>\n\n\n\n<p>You can check all these financial statements of a company on<a href=\"https:\/\/www.tickertape.in\/?utm_source=blog&amp;utm_medium=article\"> Tickertape<\/a>. Using the search bar, enter the company you wish to analyse. Click on \u2018Financial Statements\u2019 from the stock page to access the income statement analysis, balance sheet, and cash flow.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Annual-Report-and-Investors-Presentation\"><\/span>Annual Report and Investors\u2019 Presentation<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>An annual report is a comprehensive document that a company must provide to all its <a href=\"https:\/\/www.tickertape.in\/blog\/shareholders\/\">shareholders<\/a> annually. It describes their operations throughout the year. You can determine the company&#8217;s financial health with the help of an annual report.<\/p>\n\n\n\n<p>The intent of a company&#8217;s annual report is to provide public disclosure of its operations and financial activities over the past year. There are numerous components of an annual report. As an investor, you should look for the business overview, financial\/performance highlights, Management Discussion and Analysis (MD&amp;A), Director\/Board&#8217;s report, notes to accounts, auditor&#8217;s report, Chairman&#8217;s statement, and debt scenario. The annual report provides valuable information which you can use to analyse the company thoroughly.<\/p>\n\n\n\n<p>Investors&#8217; presentation consists of facts about the company, immediate sales growth opportunities, industry analysis, management team, all-round performance, innovations, future plans and more. It is important to note that not every company provides investors presentations to its shareholders. Investors&#8217; presentation is a brief, clear, informative resource to understand the business.To get annual reports and investors&#8217; presentations of a company, click on &#8216;Financial Statements&#8217; of stock on<a href=\"https:\/\/www.tickertape.in\/?utm_source=blog&amp;utm_medium=article&amp;utm_campaign=\"> Tickertape<\/a> and scroll down to the bottom. You will get the company&#8217;s annual reports and investors&#8217; presentations.<\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"362\" src=\"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/08\/Screenshot-2022-08-16-at-12.14.53-AM-1024x362.png\" alt=\"\" class=\"wp-image-9810\" srcset=\"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/08\/Screenshot-2022-08-16-at-12.14.53-AM-1024x362.png 1024w, https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/08\/Screenshot-2022-08-16-at-12.14.53-AM-300x106.png 300w, https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/08\/Screenshot-2022-08-16-at-12.14.53-AM-1536x543.png 1536w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><figcaption class=\"wp-element-caption\"><em>Annual reports and investors&#8217; presentations on Tickertape<\/em><\/figcaption><\/figure><\/div>\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Growth-over-the-period-of-3-and-5-yrs\"><\/span><strong>Growth over the period of 3 and 5 yrs<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/lh5.googleusercontent.com\/MHW9lf6H_0eivLrwHPL-dfSuuzwZgiKq1R3J1VG7n8mxENR0FZJBmTPClF5XloOFuEipeg0LPLGEJ4Gs1J3NyfR1c_o-B0DIpqVpxKK-mDCk5zRCvUgY5njLpgo0zacNTTM0-W9trdTLuTfSXI-2WyA\" alt=\"\"\/><figcaption class=\"wp-element-caption\"><em>Stock page of Hindustan Unilever Ltd on Tickertape<\/em><\/figcaption><\/figure><\/div>\n\n\n<p>After analysing the financial statements and annual reports, you can analyse the growth in the share price of a stock for 3-yr and 5-yr periods. If a company has shown positive growth in all the previous steps, it is highly likely that it has had an upward trend in its stock price for the previous 3 yrs and 5 yrs. For the purpose of fundamental analysis, we always analyse the long-term growth of the share price.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Financial-ratios\"><\/span>Financial ratios<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>Financial ratios are helpful in determining the performance of a company. They are the best ways to analyse financial statements. Benjamin Graham, popularly known as the father of fundamental analysis, has made the use of financial statements popular. The ratios help in the competitive analysis of a company. Further, you can also analyse a company\u2019s performance by analysing its financial ratios trend.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"A-Profitability-ratios\"><\/span>A. Profitability ratios&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n\n<p>As the name suggests, <a href=\"https:\/\/www.tickertape.in\/blog\/profitability-ratios\/\">profitability ratios<\/a> determine the profitability of a company. The ratios reveal the performance of a company in terms of generating profits. They also convey the competitiveness of the management. There are various<a href=\"https:\/\/www.tickertape.in\/blog\/profitability-ratios\/\"> profitability ratios<\/a>. For the purpose of fundamental analysis, here are four profitability ratios.<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1-PAT-margin\"><\/span>1. PAT margin<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>Profit After Tax (PAT) <a href=\"https:\/\/www.tickertape.in\/blog\/margin-requirements\/\">margin<\/a> is calculated by deducting all company expenses from its total revenue. It identifies the overall profitability of a company. The formula to calculate the PAT margin is,<\/p>\n\n\n\n<p><strong>PAT margin = [PAT \/ Total revenue]*100<\/strong><\/p>\n\n\n\n<p>The higher the PAT profit margins, the better the profitability of a company. It is referred to as Net Profit Margin (NPM). It should be compared with the previous years&#8217; trends or competitors to understand more deeply.<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2-Return-on-Equity-ROE\"><\/span>2. Return on Equity (ROE)<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>It is a critical ratio that assesses the return earned by the shareholders on every unit of capital invested.<a href=\"https:\/\/www.tickertape.in\/blog\/return-on-equity-ratio\/\"> ROE<\/a> is useful in measuring the company&#8217;s ability to generate profits from the shareholders&#8217; investments. It represents the efficiency of a company in generating profits for its shareholders. It is calculated as,<\/p>\n\n\n\n<p><strong>ROE = [ Net income \/ Shareholders\u2019 equity ] * 100<\/strong><\/p>\n\n\n\n<p>To calculate the shareholders&#8217; equity, subtract a company&#8217;s total liabilities from its total assets. You can get this information from the balance sheet.&nbsp;<\/p>\n\n\n\n<p><strong>Shareholders&#8217; equity = Total assets &#8211; Total liabilities<\/strong><\/p>\n\n\n\n<p>High ROE signifies good cash generation by the company, conveying a good performance by management, whereas low ROE indicates otherwise. ROE of a company can also be compared with its competitors and past years&#8217; trends to get a better understanding.<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3-Return-on-Assets-ROA\"><\/span>3. Return on Assets (ROA)<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>It is a profitability ratio that measures the profitability of a company in relation to its total assets. It shows if the company is using its assets efficiently to generate profits. To calculate the ROA, divide a company&#8217;s net income by its total assets.<\/p>\n\n\n\n<p><strong>ROA = Net income \/ Total assets<\/strong><\/p>\n\n\n\n<p>The higher the ROA, the more efficient management is in utilising the economic resources. Both ROE and ROA reflect how well a company utilises its resources. However, there is one key difference which is the way they treat a company&#8217;s debt. ROA captures how much debt a company carries as its total assets include all kinds of capital. On the other hand, ROE leaves out all the liabilities and only measures the return on a company&#8217;s equity.&nbsp;<\/p>\n\n\n\n<p>If a company has more debt, its RoE would be higher than its ROA.<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4-Return-on-Capital-Employed-ROCE\"><\/span>4. Return on Capital Employed (ROCE)<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>It is useful in understanding how well a company is utilising its capital to generate profits. It takes into consideration all kinds of capital, including debt. To calculate <a href=\"https:\/\/www.tickertape.in\/blog\/capital-allocation-impact-on-stock-price\/\">ROCE<\/a>, divide Profit Before Interest and Tax (PBIT) by the total capital employed.<\/p>\n\n\n\n<p><strong>ROCE = PBIT \/ Total capital employed<\/strong><\/p>\n\n\n\n<p>Where the total capital employed = Equity + short-term debt + long-term debt<\/p>\n\n\n\n<p>PBIT is also known as Earnings Before Interest and Tax (EBIT). You can find this information in the income statement of a company.&nbsp;<\/p>\n\n\n\n<p>A higher ROCE suggests efficient management in terms of capital employed. However, a lower ROCE may indicate a lot of cash on hand as cash is included in total assets. As a result, high levels of cash can sometimes skew this metric.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"B-Leverage-ratios\"><\/span>B. Leverage ratios<span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n\n<p>Often referred to as solvency ratios, leverage ratios measure a company&#8217;s ability to sustain its day-to-day operations in the long term. It measures a company&#8217;s financial health by determining its ability to meet its long-term debt obligation. Let&#8217;s look at two leverage ratios that will help us determine the potential company to invest in:<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1-Debt-to-equity-ratio\"><\/span>1. Debt-to-equity ratio<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>It is one of the prominent ratios in fundamental analysis and is often referred to as the risk ratio. The debt-to-equity ratio calculates the weight of a company&#8217;s total debt against total shareholders&#8217; liabilities. It is calculated as&nbsp;<\/p>\n\n\n\n<p><strong>Debt-to-equity ratio = Total debt \/ Shareholders\u2019 equity<\/strong><\/p>\n\n\n\n<p>Where the total debt = short-term debt + long-term debt + fixed payment obligations<\/p>\n\n\n\n<p>A value of one on this ratio signifies that there is an equal amount of debt and equity capital. A higher ratio (more than 1) indicates higher leverage, whereas a lower than 1 signifies a relatively bigger equity base with respect to debt. The maximum acceptable debt-to-equity ratio for many companies is between 1.5-2 or less. For larger companies, debt to equity ratio of 2 or higher is acceptable. Ultimately, an ideal debt-to-equity ratio varies across companies based on the sector they belong to.<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2-Interest-coverage-ratio\"><\/span>2. Interest coverage ratio<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>Often referred to as the debt service ratio or the debt service coverage ratio, it gives insights into how easily a company can repay the interest on its outstanding debt. The interest coverage ratio determines the time (typically number of quarters or years) for which interest payment can be made with the company\u2019s current available earnings. It is calculated as<\/p>\n\n\n\n<p><strong>Interest coverage ratio = EBIT \/ Interest expense<\/strong><\/p>\n\n\n\n<p>The lower the ratio, the more the company has a debt burden. The company\u2019s ability to pay back the debt is questionable when the interest coverage ratio is only 1.5 or lower. The analysts usually prefer an interest coverage ratio of 2 or more.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"C-Operating-ratios\"><\/span>C. Operating ratios<span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n\n<p>Often referred to as activity ratios, they measure the efficiency at which a business can convert its assets into revenues. Operating ratios help us understand the efficiency of a company\u2019s management. Profitability ratios convey the company\u2019s efficiency, which is generally determined by measuring the operating ratios. Hence, it is difficult to classify these ratios.&nbsp;<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1-Working-capital-turnover\"><\/span>1. Working capital turnover<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>To run a company\u2019s day-to-day operations, working capital is required. The working capital turnover ratio measures how much revenue a company generates for every unit of working capital. It is commonly referred to as net sales to working capital. The formula to calculate it,<\/p>\n\n\n\n<p><strong>Working capital turnover ratio = Revenue \/ Average working capital<\/strong><\/p>\n\n\n\n<p>The higher the working capital turnover ratio of a company, the better sales it can generate in comparison with the funds they have used to execute the sales.<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2-Total-assets-turnover\"><\/span>2. Total assets turnover&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>This ratio indicates a company\u2019s ability to generate revenues with the given amount of assets. It is a ratio of the total sales or revenue of a company to its average assets. The total assets turnover ratio is calculated annually. It is calculated as<\/p>\n\n\n\n<p><strong>Asset turnover ratio = Operating revenue \/ Average total assets<\/strong><\/p>\n\n\n\n<p>A higher total assets turnover ratio conveys that a company is using its assets efficiently to generate more sales, whereas a lower ratio indicates a company\u2019s inability to use its resources effectively.<\/p>\n\n\n\n<p>This ratio tends to be higher in certain sectors. For example, sectors like retail usually have small asset bases but higher sales. Hence, they have the highest asset turnover ratio. Conversely, sectors like real estate and utilities have large asset bases, thus, low asset turnover.<\/p>\n\n\n\n<h5 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"D-Valuation-ratios\"><\/span>D. Valuation ratios<span class=\"ez-toc-section-end\"><\/span><\/h5>\n\n\n\n<p>Stock <a href=\"https:\/\/www.tickertape.in\/blog\/how-to-use-valuation-ratios-to-evaluate-stocks\/\">valuation ratios<\/a> measure a company\u2019s worth. It analyses whether a company\u2019s current share price is perceived as its true value. It compares the cost of security with the perks of owning the stock. Let\u2019s explore some valuation ratios.<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1-Price-to-Earnings-ratio-PE-ratio\"><\/span>1. Price-to-Earnings ratio (P\/E ratio)<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>It is a popular ratio that analyses a company\u2019s share price to its earnings per share. Due to its popularity, it is often called a \u2018financial ratio superstar\u2019. It helps in determining if a stock is undervalued or overvalued.<\/p>\n\n\n\n<p><strong>P\/E ratio = Market value per share \/ Earnings per share (EPS)<\/strong><\/p>\n\n\n\n<p>To determine if a stock is undervalued or overvalued, the<a href=\"https:\/\/www.tickertape.in\/blog\/pe-ratio\/\"> P\/E ratio<\/a> of that stock is compared with other stocks of the same industry and\/or with the sector P\/E. A high P\/E ratio could mean that the stock price is relatively higher than its earnings and possibly overvalued. In contrast, a low P\/E ratio might indicate the stock\u2019s price is low relative to earnings and perhaps undervalued.<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2-Price-to-Sales-ratio-PS-ratio\"><\/span>2. Price to Sales ratio (P\/S ratio)<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>It compares the stock price of a company to its revenue. It helps in determining how much an investor is willing to pay per rupee of sales. The formula for the P\/S ratio is<\/p>\n\n\n\n<p><strong>P\/S ratio = Current share price&nbsp; \/ Sales per share<\/strong><\/p>\n\n\n\n<p>Where the sales per share = Total revenues \/ Total number of shares<\/p>\n\n\n\n<p>It is better to compare the P\/S ratio of similar companies in the same industry to get a deeper understanding of how cheap or expensive the stock is. The higher the P\/S ratio, the higher the valuation of the company. Conversely, a low ratio indicates the stock is undervalued.<\/p>\n\n\n\n<h6 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3-EVEBITDA-ratio\"><\/span>3. EV\/EBITDA ratio<span class=\"ez-toc-section-end\"><\/span><\/h6>\n\n\n\n<p>Enterprise Value (EV) measures a company&#8217;s total value. It is compared with a company&#8217;s<a href=\"https:\/\/www.tickertape.in\/blog\/what-is-ebitda\/\"> EBITDA<\/a> to determine how often an investor has to pay <a href=\"https:\/\/www.tickertape.in\/blog\/what-is-ebitda\/\">EBITDA<\/a> if they were to acquire the entire business.&nbsp;<\/p>\n\n\n\n<p>Similar to the P\/E ratio, the lower the EV\/EBITDA, the lesser the company valuation. A high EV\/EBITDA signifies that a company is highly likely to be overvalued. This ratio is used in comparison with other companies in the same sector. Hence, cross-sector comparison won&#8217;t be helpful. It is commonly used to figure out what multiple a company is currently trading at.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Fundamental analysis is the first step you take when you are looking for long-term investments in assets like stocks. It is an extensive process but provides you with your potential long-term investment plan. Hence, take your time in understanding the financial statements, stock growth of a company, and evaluating the crucial financial ratios.<a href=\"https:\/\/www.tickertape.in\/?utm_source=blog&amp;utm_medium=article\"> Tickertape<\/a> is your complete destination for fundamental analysis. From getting financial statements to ratios, adding stocks to the watch list, to investing in them directly, everything can be done here. Start your investment journey now!<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Frequently-Asked-Questions-About-Fundamental-Analysis\"><\/span>Frequently Asked Questions About Fundamental Analysis<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n<div id=\"rank-math-faq\" class=\"rank-math-block\">\n<div class=\"rank-math-list \">\n<div id=\"faq-question-1671023343181\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"1-Can-we-use-both-fundamental-and-technical-analysis-of-stocks\"><\/span><strong><strong>1. Can we use both fundamental and technical analysis of stocks?<\/strong><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Fundamental analysis uses financial and economic data of the company for a long-term investment approach, while technical analysis takes the price and trading value for short-term trading. Depending on the investment period, you can use the approaches.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1671023352124\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"2-Should-the-fundamental-analysis-of-stocks-be-used-only-by-the-experts\"><\/span><strong><strong>2. Should the fundamental analysis of stocks be used only by the experts?<\/strong><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>No. The fundamental analysis of stocks is not limited to experts. Any investor can make use of this company analysis before investing in stocks for the long term.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1671023400756\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"3-How-to-do-a-fundamental-analysis-of-stocks\"><\/span><strong><strong>3. How to do a fundamental analysis of stocks?<\/strong><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>Fundamental analysis and investment analysis is a holistic approach to understanding and studying a business. It helps in determining fundamentally strong companies. Here\u2019s how to do it in brief.<br \/>&#8211; Understand the company, their business model, management structure, and so on.<br \/>&#8211; Use financial ratios like PE ratios to evaluate the company.<br \/>&#8211; Study the financial reports of the company.<br \/>&#8211; Find the competitors and study them. Look for competitive advantages in the company.<br \/>&#8211; Check the company\u2019s debt and compare it with rivals.<br \/>&#8211; Analyse the company&#8217;s future prospects.<br \/>&#8211; Review all the aspects from time to time.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-question-1671023438305\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \"><span class=\"ez-toc-section\" id=\"4-How-to-get-a-Tickertape-Pro-membership\"><\/span><strong><strong>4. How to get a Tickertape Pro membership?<\/strong><\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<div class=\"rank-math-answer \">\n\n<p>To become a <a href=\"https:\/\/www.tickertape.in\/blog\/tickertape-pro-features-for-advanced-investment-analysis\/\">Tickertape Pro<\/a> Member and enjoy various benefits, you must-<\/p>\n<p>&#8211; Log in to Tickertape\u00a0<br \/>&#8211; Visit the<a href=\"https:\/\/www.tickertape.in\/pricing\"> Tickertape pricing<\/a> page\u00a0<br \/>&#8211; Select the plan that suits your needs<br \/>&#8211; Make the payment\u00a0<\/p>\n<p>And Voila! Awesomeness is unlocked. Make the best use of the platform.<\/p>\n<p>Read these articles to get a better understanding:\u00a0<\/p>\n<p>&#8211;<a href=\"https:\/\/www.tickertape.in\/blog\/how-tickertape-makes-investing-easy-and-rewarding\/\"> How Tickertape Makes Investing Easy and Rewarding<\/a><br \/>&#8211;<a href=\"https:\/\/www.tickertape.in\/blog\/how-to-use-tickertape-stock-screener-to-discover-stocks-a-complete-guide\/\"> How To Use Tickertape Stock Screener To Discover Stocks? \u2013 A Complete Guide<\/a><br \/>&#8211;<a href=\"https:\/\/www.tickertape.in\/blog\/introducing-tickertape-mutual-fund-screener\/\"> Introducing Mutual Fund Screener: Find the Right Fund for Your Financial Goals<\/a><br \/>&#8211;<a href=\"https:\/\/www.tickertape.in\/blog\/how-mmi-can-help-in-timing-your-investments-better\/\"> Market Mood Index (MMI): Time Your Investments Better<\/a><\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"<p>Fundamental analysis is a holistic approach that helps in evaluating companies in order to find fundamentally strong stocks.<\/p>\n","protected":false},"author":90,"featured_media":9811,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[1743],"tags":[],"acf":[],"modified_by":"Aishika Banerjee","jetpack_featured_media_url":"https:\/\/www.tickertape.in\/blog\/wp-content\/uploads\/2022\/08\/TT-9-Aug-Fundamental-Analysis-BB-01.jpeg?wsr","_links":{"self":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/9804"}],"collection":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/users\/90"}],"replies":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/comments?post=9804"}],"version-history":[{"count":13,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/9804\/revisions"}],"predecessor-version":[{"id":17185,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/posts\/9804\/revisions\/17185"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media\/9811"}],"wp:attachment":[{"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/media?parent=9804"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/categories?post=9804"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tickertape.in\/blog\/wp-json\/wp\/v2\/tags?post=9804"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}