UK Accounting Glossary
Fundamental analysis attempts to find the actual value of a stock — ie, its ability to generate future cash flows — to make investment decisions. Fundamental analysis thus focuses on a company’s financial results. Specifically, fundamental analysis emphasizes forecasts of a company’s earnings and revenue growth rates, valuation ratios like price to earnings, and financial ratios like profit margins. Fundamental analysis also looks to conditions in the industry sector(s) in which the company operates and the broader economic outlook. Fundamental analysis stands in stark contrast to technical analysis, which ignores company fundamentals and looks only at the movement of stock prices and market activity. Both fundamental analysis and technical analysis have their doctrinaire adherents who consider the opposing approach useless. Most market pros, however, recognize that both fundamental analysis and technical analysis have their role in forecasting stock prices.
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This glossary post was last updated: 9th February 2020.