What does fundamental analysis involve?

Fundamental analysis primarily focuses on determining a company's intrinsic value by closely examining its financial statements and other relevant data. This method includes a thorough analysis of key indicators from balance sheets, income statements, and cash flow statements, allowing investors to assess the overall health and performance of a company. By evaluating various financial metrics, such as revenue, earnings, debt levels, and profit margins, analysts can establish whether a stock is overvalued or undervalued relative to its true worth. The goal of this analysis is to make informed investment decisions based on the fundamental factors that influence a company's ability to generate profits.

While other approaches, such as studying stock price trends or projecting future market trends, are also important in the investment decision-making process, they do not form the core purpose of fundamental analysis. Instead, they fall under technical analysis or market trend analysis, which involves different methodologies and focuses. Analyzing economic conditions can complement fundamental analysis but doesn’t specifically pertain to the evaluation of a single company's financial health and value as reflected in its accounting statements.