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How to do Fundamental Analysis of Stock?

It is always advisable to carry out fundamental analysis or research before making an investment in any stock. Let me give you one real-life example. When we purchase a shoe from the market we wear it two-three times. We also check if it is comfortable by walking two-three times. If we take utmost precision while buying such a small item, Why we are so casual while making an investment in the stock market? Well, one reason could be we don’t know what is fundamental analysis or How to do fundamental analysis of the stock. If it is a case this post is for you. In this post, I will try to explain How to do Fundamental Analysis of Stock? Fundamental analysis helps investor in taking an informed decision.

Also Read – 5 Stocks Screener Websites for Fundamental Analysis in India

What is Fundamental Analysis?

Fundamental Analysis (FA) is a method to identify fundamental (intrinsic) value of the stock. Fundamental analysis is done by collecting financial statement and doing research over data such as revenue, expense, growth prospects etc.

The basic objective of the fundamental analysis is knowing everything about business before making an investment. Its emphasis on the business and not on the market. For fundamental analysis, you need to analyze a lot of information like business model, product range, completion, historical performance, future prospects, financials, management integrity etc. An outcome of FA is fair market value of the stock which helps investors in making the investment decision.

In nutshell, fundamental analysis is aimed at finding out suitability, value and financial status of business for the investment.

How fundamental analysis helps investors?

You can find out fair value of the stock by doing FA. After doing FA, you can compare your value with the current market price of the stock to know if the stock is undervalued, overvalued or fairly valued. If the stock is undervalued you can buy the stock. If the stock is overvalued you can sell it.

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How to do Fundamental Analysis of stock?

The first thing you need to study while doing fundamental analysis of a stock is income statement, cash flow statement and balance sheet. You can get this information from public domain or company website. However, I recommend using website for getting all these information. Screener is a stock analysis and screening tool to see information of listed Indian Companies in a customizable way.

In this website you just need to input a company name and press search button. You will be taken to a web page where you can find complete information about the company including income statement, quarterly result, balance sheet and analysis.

Suppose you want to analyze stock of Avanti Feeds. You need to input “Avanti Feeds” as a search query and you will reach to the web page which will look like the image given below. We will first analyze income statement.

fundamental analysis

Income Statement –

Income statement deals with income, expense, and profit of the company during given financial year. In order to get income statement click on either Quarters or Profit & Loss tab. In Quarters tab you will get a quarterly statement in Profit & Loss tab you will get Annual Result.

The first thing you need to see is sales and expense number. If sales numbers are increasing and expense is managed it means a company is doing good. Another thing you should see is Net Profit of the company. If you take a look at Avanti Feeds net profit of the company is increasing every year. This means a company is doing good.

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Next important parameter is EPS. EPS means Earning per share. A company’s profit divided by a number of shares gives you EPS. Higher the EPS better is the stock. In Avanti Feeds stock you can see EPS is increasing.

fundamental analysis

Balance Sheet –

The balance sheet is a most critical financial statement. A balance sheet of the company talks about assets and liabilities of the business. You will get last several years balance sheet on this website. You need to click on “Balance Sheet” tab for this.

You need to look at total liabilities and compare that with revenue generated by the asset of the company. It should be greater than the amount required to repay the liabilities incurred to acquire them.  In addition to that you should also see the sustainability of debt. Too much debt will force the company to earn beyond its potential to repay this debt.

Cash Flow statement –

Cash flow statement talks about the cash position of the company. There are three parts of cash flow statement. Operating, investing and financing cash flow. You will get this information in Cash Flow Tab.

Operating cash flow shows how much cash comes from the sales of the company’s good, less the amount of cash needed to make and sell those goods. It is good to have a company with net positive cash flow. Investing cash flow shows how much money is used for a capital expenditure or investing. Cash flow for financing used to know money used for repayment of interest, dividend payout or buying back share etc.

Also Read –How to Find Multibagger Stocks for Investment? – Flowchart

Peer Comparison –

It is good to know how a company is performing compared to peer. also provides facility to compare companies with a peer group in the same segment. This will help in the selection of right stock in the specific sector.

You can also visit Analysis section and see useful information about stock such as reduction in debt, increase in profit etc.

Once you are done with basic fundamental analysis as described above, you need to focus on advanced things such as customers, competitions, regulations, new product range, type of business, entry barrier, market size, business model etc. After doing the complete analysis you can get a fair idea that stock is good for investment or not.

I hope above method used by me for finding stock based on basic fundamental analysis will help you in stock selection.

Do share your views, queries, and suggestion in the comment section.

Shitanshu Kapadia
Shitanshu Kapadia
Hi, I am Shitanshu founder of I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment , tax, financial advice or legal opinion. Please consult a qualified financial planner and do your own due diligence before making any investment decision.