What Is Fundamental Analysis?

Stock Markets are so volatile that to predict the flow and movement of market prices accurately is almost impossible. Random Walk Theory predicts that the past prices can never be the indicators of the future prices of shares.

In order to deal with this problem, investment analysts use another method to find out the intrinsic value of shares or stocks. Intrinsic value is the value at which a share should be trading in a perfect market. It is believed that shares or stocks trade in a band called arbitrage band and the values in these bands are called fair or intrinsic value of the share.

Fundamental Analysis is the method through which the fair value of the share is computed. This analysis is conducted in different phases or stages with results of each stage are forecasted and integrated into one final financial model to compute the fair value. Different Financial models are created mostly MS EXCEL based financial models which are created to conduct the fundamental analysis first by making solid and realistic assumptions about the future and than quantifying these assumptions into the financial model to forecast the values. Mostly three years' data is forecasted to compute the value by taking into consideration other factors.