Fundamental analysis happens to be the cornerstone of investing.
There are innumerable investment strategies that are very
different from each other, yet almost all use the fundamentals
as a part of their analysis. Fundamental analysis is all
about doing qualitative and quantitative analyses about
the basic details of the business such as the revenue, expenses,
assets, liabilities and all other fundamental aspects of
the company. Where pure quantitative analysis tool such
as ratio analysis cannot be used, the intangibles in the
business have to be broken down into more interpretable
process, which is called the qualitative analysis.
Fundamental analysis is all about "researching the fundamentals
of the company". These include both the fundamentals
of the company such as revenue and expenses, as well as
the quality of the management and the market share of the
company. The fundamentals of a company can be grouped into
two categories; quantitative or which can be measured in
numerical terms and qualitative which can be assessed on
the basis of certain character or process. Thus, for a company,
the quantitative factors are those which can be obtained
from and the financial statements like those of the revenue,
expenses, profit and the deferral of revenue, to mention
a few. The qualitative fundamentals involve the nature of
governance, the type and quality of the management, the
brand name of the company, the market share of the company
and expansion plans amongst many others.
It is difficult to rank both these measures in portfolio
analysis. Let us take the example of particular scrip, Pepsi.
Any investor would use the financial data, the stock data
and the P/E multiplier before investing in this company.
This may be very crucial, but one cannot ignore the brand
value of Pepsi in the process that adds on to the value
of the stock. This is true for all the major brands in their
respective industries like Microsoft in the software industry,
Bell Labs in communication or Caterpillar in the heavy earth-mover
industry. In all these cases, it is tough to assess the
values of the companies simply going by the financial data.
|
