How to Analyse a Stock
Fundamental analysis values a company by studying its business, financial statements and the wider economy, to judge whether a stock looks cheap or expensive. Where technical analysis reads the chart, fundamentals read the business. This guide covers the statements, key ratios, valuation basics, and how fundamentals pair with technicals.
Key takeaways
- Fundamental analysis judges what a company is worth, not when to trade it.
- The three financial statements – income, balance sheet, cash flow – are the raw material.
- Ratios like P/E, EPS and ROE turn those statements into comparisons.
- Top-down context (economy, sector) shapes whether good companies are good investments now.
- It complements technical analysis; FXE teaches both. Not financial advice.
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What is fundamental analysis?
Fundamental analysis estimates a company’s intrinsic value by examining its earnings, assets, debts, growth and competitive position, then compares that to the market price.
The goal isn’t to time the market but to decide whether a business is worth owning at today’s price – and why.
How to read the financial statements
Three statements, each answering a different question about the business.
Income statement
Revenue, costs and profit over a period – is the business making money?
Balance sheet
Assets, liabilities and equity at a point in time – what it owns and owes.
Cash flow statement
Where cash actually came from and went – harder to massage than profit.
Key ratios and valuation
Ratios turn raw statements into comparisons between companies and over time.
Fundamental vs technical analysis
They answer different questions; used together they cover both ‘what’ and ‘when’.
| Fundamental analysis | Technical analysis | |
|---|---|---|
| Studies | The business, financials and economy | Price and volume on the chart |
| Answers | What a stock is worth and why | When and at what price to act |
| Time horizon | Months to years | Minutes to months |
| Best for | Deciding what to own | Timing entries and exits |
Want the charting side? See How to read stock charts.
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FAQ
What is fundamental analysis?
Fundamental analysis values a company by studying its business, financial statements and the wider economy, to judge whether a stock looks cheap or expensive relative to its price.
How do you value a stock?
Common approaches compare valuation multiples like P/E against peers, or estimate intrinsic value with a discounted cash flow. Every method relies on assumptions and carries uncertainty.
What is the difference between fundamental and technical analysis?
Fundamental analysis asks what a stock is worth; technical analysis asks when and at what price to act. Many traders use fundamentals to choose what to own and technicals to time it.
Which financial ratios matter most?
P/E, EPS, ROE and debt-to-equity are common starting points, always read in the context of the sector and the company’s history rather than in isolation.
Can you combine fundamental and technical analysis?
Yes – many traders do. The Ultimate Trading Masterclass brings both together. Nothing here is financial advice.