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Fundamental analysts focus on information and macroeconomic factors that are affecting the true value of a financial security.



1. Learn the Basics of Fundamental Analysis

Fundamental Analysis is commonly used when evaluating financial assets like stocks, bonds, and commodities. Analysis of more volatile financial instruments -like the derivatives market (futures, standard options, and especially binary options) or the Forex market is based more on technical analysis issues than on fundamental issues. Fundamental analysts focus on information and macroeconomic factors that are affecting the true value of a financial security.

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The Goals of Fundamental Analysis

The main goal of a fundamentalist is to trace and trade financial securities that are priced below their fair market value. Fundamental analysis is focusing on estimating the fair value of a targeted financial security. Another important task for a fundamentalist is to identify and measure the potential risk of each investment decision. Risk identification is essential for managing your portfolio in an efficient and effective way.

Building a Fundamental Analysis Framework

In order to build a Fundamental Analysis Framework, you must first identify all major internal and external fundamental factors that will affect future cash-flows of your investment.

1) Internal Fundamental Factors
2) External Fundamental Factors

Technical Analysis Vs Fundamental Analysis

Two forces are forming the overall framework of an investment analysis in the financial markets: Technical Analysis and Fundamental Analysis. The different nature of each of these forces is based on time. In short-term periods Technical Analysis is much more effective in contrast to long-term periods where fundamental analysis is more important.


2. Major Categories of Financial Ratios

Financial Ratios are used for evaluating several financial aspects of a particular company or an industry. Financial ratios are used as a tool for comparing different companies and industries in several financial categories like profitability, dividends paid, book value and many others. Here are the categories of financial ratios.

1) Balance Sheet Ratios –Measuring Financial Stability

i) Debt-Equity Ratio

ii) Current Ratio

2) Operating Ratios - Measuring Performance

i) Operating Profit Margin

ii) Net Profit Margin

3) Efficiency Ratios – Measuring Efficiency

i) Total asset turnover ratio

ii) Return on Equity

4) Valuation Ratios – Measuring Effectiveness

i) P/E Ratio

ii) P/E/G Ratio

Categories of Financial Ratios


3. Valuation of stocks and industries

Been able to evaluate a company true value is very important towards making profitable investment decisions. Here are the five most important evaluating methods:

1) Revenue-Based Valuations

2) Earnings-Based Valuation

3) Cash Flow-Based Valuation

4) Equity-Based Valuation

5) Empirical Valuation

Valuating Stocks and Industries


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