Question

Your boss asks you to do fundamental analysis of a corporation. What value is she asking for and how would you estimate this value?

Answer 1

Fundamental analysis (FA) is a method of measuring a security's intrinsic value by examining related economic and financial factors. Fundamental analysts study anything that can affect the security's value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company's management.The end goal is to arrive at a number that an investor can compare with a security's current price in order to see whether the security is undervalued or overvalued.

So if my boss is asking me to do a fundamental analysis of a corporation, than he is asking for the intrinsic value of the company's securities, to estimate that whether is is overvalued or undervalued, it helps in deciding whether to invest in that security or not.

To do the fundamental analysis we have to consider two types of fundamentals:

• Qualitative fundamentals - This includes business model, competitive advantage, management and corporate governance of the company.
• Quantative fundamentals - In this we can analyse the financial statements of the company. The three most important financial statements are income statements, balance sheets, and cash flow statements.