Fundamental Analysis

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Definition of 'Fundamental Analysis'

Fundamental analysis is a method of evaluating the financial health and performance of a company or security by examining a variety of qualitative and quantitative factors, such as financial statements, economic indicators, industry trends, and management quality. The goal of fundamental analysis is to determine the intrinsic value of a company or security and to identify investments that are undervalued or overvalued.

Some of the key factors that fundamental analysts may consider when evaluating a company or security include revenue and earnings growth, profit margins, cash flow, debt levels, management quality, and competitive position within an industry. Fundamental analysts may also consider broader macroeconomic factors, such as interest rates, inflation, and economic indicators, to understand how these factors may impact a company's performance.

Fundamental analysis is often used by long-term investors who are looking for investments that they believe will grow over time, as well as by value investors who are looking for undervalued investments that they believe will increase in value as their true worth becomes recognized by the market.

Critics of fundamental analysis argue that it is subjective and difficult to apply consistently across different industries and companies, and that it may not account for the impact of market sentiment and other external factors. However, supporters of fundamental analysis argue that it provides a thorough and detailed understanding of a company's financial health and performance, and can help investors make informed investment decisions based on a company's long-term prospects.

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