The intrinsic value of a stock can be found out by means of fundamental analysis. An investor can understand if the stock is undervalued or overvalued. Fundamental analysis looks at various factors of the stock such as PE ratio, EPS, Dividend Yield, etc.

Stock investing requires careful analysis of financial data to find out the company’s true worth. This is generally done by examining the company’s profit and loss account, balance sheet and cash flow statement. This can be time-consuming and cumbersome.

In order to start investing in stock market the first thing you need to do is fundamental analysis of stocks before buying it,and yes fundamental analysis is the most important and crucial factor in stock investing through fundamental analysis you get to know about the company in more detail,about its performance in last 5-10 years, its long term objectives and financial position of the company and many more things which are very important to know because it will directly affect the share price of the stock

So the question here arises is how to do fundamental analysis as a i said there are many things to know the company which is the part of fundamental analysis it become a tedious and time taking task to do this, there are so much things to analyse about the company which sometimes makes investors lethargic and led them to follow other investor and buying what the hot stock in the market which is totally wrong thing you can’t depend on others in stock investing because the share price keeps changing due to volatility and make your wealth comes to nil, and i also know that yes it is a time taking task but still i try to reduce the time and share the key points in details which need our attention more,So i am gonna share with you only those key points which are the most relevant and only need special attention and i believe that this post will give you some useful insights.

FACT : There are over 5,500 stocks listed in the Indian stock exchange. If you start reading the financials (balance sheet, profit-loss statement, etc.) of all these companies, then it might take years.

Gather information about company

The first thing for doing fundamental analysis is you need to gather information about the company,there are many sources from where you can get information about the company. For this purpose, you should read the company’s annual reports, balance sheet, profit & loss account, any news related to the company in particular or the sector, etc. .

• RHP(Red Herring Prospectus) : It is a document about the company’s important information like objective or goals of a company,company background,Industry overview etc. You can get this document on SEBI website.

• AGM(Annual General Meeting) : This is a meeting in which the ceo of the company shares useful insights related to the company to all the investor, In this meeting the ceo also shares the current performance of the company and what their future plans. You can get this report on the company website and other equity research related website.

• Business News : you can keep updated yourself by watching business to know what are the major things happening across the business sectors and also the economic condition of the country.Economic condition can directly effect the stock market so its better to keep updated with the economic condition of the country.

• There are also many finance apps and website available which are dedicated to stock investing which also published financial data of the company like moneycontrol which shows financial information like financial ratios and quarterly reports of the company listed in NSE or BSE. You can also refer to comapany’official website there the company published qurterly reports or other financial reports.

Financials analysis of the company

• This is the most important step in fundamental analysis and also complex task because you need some finance knowledge in order to do financial analysis of a company.

• In order to take better investing decision you need to analyse the financials of the company and for that you need to analyse the financial statement and balance sheet of the company

• If you are from commerce or business background than you can easily do financial analysis of a company but if you are non-commerce background there is no need to worry you can still analyse it but first you must need to read about accounting,finance topics you can get easily stuff about this on Youtube or you can read some books then after getting some knowledge about financials of the company you can start doing financial analysis on your own.

• For doing financial analysis you need some financial data of the company, then Analyse the past 5-10 year financial data like profit&loss a/c and balance sheet of the company in order to understand better how much growth have the firm done in these past years and these past year data help you understand to anticipate how the firm will grow in future.

The best website to check the financial statements of a company that most people use is SCREENER.in

Ratio Analysis

For the initial screening of the stocks, you can use various financial ratios like PE ratio, P/B ratio, ROE, CAGR, Current ratio, Dividend yield etc

• Earnings per share (EPS): EPS tells us how much of a company’s profit is assigned to each share of stock. EPS is calculated as net income (after dividends on preferred stock) divided by the number of outstanding shares.
• Price-to-earnings ratio (P/E): This ratio compares the current sales price of a company’s stock to its per-share earnings.
• Projected earnings growth (PEG): PEG anticipates the one-year earnings growth rate of the stock.
• Price-to-sales ratio (P/S): The price-to-sales ratio values a company’s stock price as compared to its revenues..
• Price-to-book ratio (P/B): This ratio, also known as the price-to-equity ratio, compares a stock’s book value to its market value. You can arrive at it by dividing the stock’s most recent closing price by last quarter’s book value per share. Book value is the value of an asset, as it appears in the company’s books. It’s equal to the cost of each asset less cumulative depreciation.
• Dividend payout ratio: This compares dividends paid out to the stockholders to the company’s total net income. It accounts for retained earnings—income that is not paid out, but rather, retained for potential growth.
• Dividend yield: This, too, is a ratio—yearly dividends compared to share price. It’s expressed as a percentage. Divide dividend payments per share in one year by the value of a share.
• Return on equity: Divide the company’s net income by shareholders’ equity to find its return on equity. You might also hear this expressed as the company’s return on net worth.

Understanding the business or company

Before investing money in shares of a company one must need to understand the company first such as in which sector company operate,who are the target audience of the company their business model,its market share,its competitors,its USP(unique selling preposition) its future plans etc.

You should know about the company’s background and management and the factors that would cause a great impact on the company

All this information help the investor to better understand the business and its viability

If you ever follow warren buffet then you must have heard this

“Never invest in a stock. Invest in a business instead. And invest in a business you understand. In other words, before investing in a company, you should know what business the company is in.”

Check the debt

• Their are two types of firms one is levered firm and another one is unlevered firm.Levered firm are those firm who uses debt in their capital structure and unlevered firm are those who don’t use debt in their capital structure

• So,before investing one need to make sure if the company is a levered firm or unlevered firm because it directly effects your return

• If you invests your money in levered firm than might be you get lower return because of the compulsion of paying interest on debt first and then pay dividend if money left out and in unlevered their is no debt, their is chances of getting better return.

• But it doesn’t mean you only invest in unlevered firm, you should invest in a firm whose capital structure is optimal having both debt and equity in better proportion,As debt also increases EPS(earning per share)of the investor but take that in mind also A company with huge debt should be avoided.

Analyse future prospect

• If you want to invest for long-term, analysing future prospects of a company becomes mandatory.

• For analysing future prospects of a company you first need to know about the future goals of a company like their plan for expansion,diversification,mergers & acquisition because these decisions directly affects the share price of the company

• We know Share market is very volatile and you can’t predict the value of any share and you also can’t regularly check the changes in your portfolio but if you just know the future prospects or goals of a company than you are able to anticipate the growth of firm.

• It is every investor’s responsibility to evaluate a company on the basis of technical and fundamental analysis before deciding on the stock.

Hope you got an idea on how to analyse a stock before investing your hard earned money in it by reading this article That’s all. I hope this post on ‘How to do fundamental analysis on stocks in 10 minutes’ is useful to the readers. Further, If you find this post helpful and want me to write more contents on any similar topic, please comment below.