where to find fundamentals for a company
some of the most common and reliable sources for the fundamentals of a company include the following remember when conducting fundamental analysis it s essential to use several sources to get a well rounded view of a company s financial prospects and to be aware of any potential biases or conflicts of interest in the information you re receiving fundamental analysis is used most often for stocks but it can be useful for evaluating any security from a bond to a derivative if you consider the fundamentals from the broader economy to the company details you are doing a fundamental analysis reading a company s annual report is an essential part of fundamental analysis here s a step by step guide on how to read and analyze an annual report the information in financial statements is among the most valuable about a company s financial health and performance here s a breakdown of what you can learn from each one the cash flow statement is crucial because it s harder for a business to manipulate its cash situation an aggressive accountant can do plenty of things to manipulate earnings for example but it s tough to fake cash in the bank for this reason some investors use the cash flow statement as a more conservative measure of a company s performance a balance sheet gets its name because the three sections it contains assets liabilities and shareholders equity must balance out using this formula quantitative and qualitative fundamental analysisthe problem with defining the fundamentals is that they can cover anything related to a company s economic well being they can include numbers like revenue and profit but they can also include anything from a company s market share to the quality of its management generally these are all grouped into two categories quantitative and qualitative in this context quantitative fundamentals are hard numbers the measurable characteristics of a business the most significant source of quantitative data is financial statements the qualitative fundamentals are less tangible they might include the quality of a company s key executives brand name recognition patents and proprietary technology neither qualitative nor quantitative analysis is inherently better many analysts consider them together fundamental analysis relies on using financial ratios drawn from data on corporate financial statements to make inferences about a company s value and prospects there are certain qualitative fundamentals that analysts should always consider when analyzing a company these include the following financial statements are how a company discloses information about its financial performance here are some of the most important financial ratios with their formulas fundamental analysis vs technical analysisfundamental analysis contrasts starkly with technical analysis which attempts to forecast prices by analyzing historical market data such as price and volume technical analysis uses price trends and action often plotted on charts to create indicators and identify patterns some indicators develop patterns that have names resembling their shapes such as the head and shoulders pattern a major distinction is where value comes from for technical analysts the market sets prices and hence the changes there give a company its value for fundamental analysts there is an intrinsic value that the market can often miss estimates the intrinsic value of a company from its operationsconsiders a company s financial statements and qualitative factorslonger term focus months years best for buy and hold investinglooks at price and market trends to uncover market psychologyconsiders historical prices and chart patternsshorter term focus days weeks best for short term or swing tradinglimitations of fundamental analysisthough fundamental analysis can provide investors with insights into the future of a company it does come with some downsides keep these items in mind when performing fundamental analysis example of fundamental analysislet s analyze a hypothetical company called abc inc using fundamental analysis we ll examine its financial statements and calculate key ratios to assess its financial health and performance first let s look at some data from abc inc s financial statements for the previous fiscal year now let s calculate some key ratios profitability ratios abc inc s profitability ratios suggest that the company is generating healthy profits from its operations its gross margin is 40 operating margin is 20 and net margin is 15 its roa and roe of 10 and 15 respectively indicate that the company is generating solid returns on its assets and equity liquidity ratios assuming abc inc s current assets are 750 million with 200 million in cash 150 million in marketable securities and 200 million in accounts receivable and its current liabilities are 250 million the company s liquidity ratios are strong a current ratio of 3 0 and a quick ratio of 2 2 suggest that abc inc has ample liquidity to cover its short term obligations solvency ratios abc inc s solvency ratios indicate that the company has a manageable level of debt relative to its equity and assets a debt to equity ratio of 0 5 and a debt to assets ratio of 0 33 suggest that the company is not overly leveraged and has the financial flexibility to meet its long term obligations valuation ratios assuming abc inc has 100 million shares outstanding and its stock price is 25 per share abc inc s valuation ratios suggest that the company s stock is trading at a reasonable valuation relative to its earnings book value and sales a p e ratio of 16 67 aligns with the broader market while p b and p s ratios of 2 5 indicate that the stock is not overly expensive relative to the company s assets and revenue in addition to these quantitative measures we can also consider certain qualitative fundamentals competitive advantages management quality industry trends growth prospects corporate governance esg factors based on this hypothetical fundamental analysis abc inc appears to be a financially healthy and potentially attractive investment however it s important to remember that this is just a simplified example in practice investors would need to conduct a more thorough analysis considering the company s competitive position industry trends management quality and growth prospects before making an investment decision 