Notes Compiled by Prof.V.S.Gopal
BENEFITS OF FUNDAMENTAL ANALYSIS
Long-term trends: Fundamental analysis is good for long-term investments basedon long-term trends.
Sound Fundamental Analysis will help identify companies thatrepresent good value. It can help discover companies with valuable assets, a strong balance sheet, stable earnings and staying power.
Fundamental Analysis helps to develop a thoroughunderstanding of the business. The investor becomes familiar with the key revenue and profit drivers behind a company.
Stocks move as a group, by understanding a company’s business,investors can better position themselves to categorize stocks within their relevant industrygroups. Knowing a company’s business and being able to place it in a group can make ahuge difference in relative valuations.The stock market does not operate in a vacuum. Similarly no industry or company canexist in isolation. It is an integral part of the whole economy of a country, more so in afree economy like that of US and to some extent in a mixed economy like that of ours.The importance of
To gain an insight into the complexities of the stock market, one needs to developa sound economic understanding and be able to interpret the important economicindicators on stock markets.
The economy is like the tide and the various industry groups and individualcompanies are like boats. When the economy expands, most industry groups andcompanies benefit and grow. When the economy declines, most sectors andcompanies usually suffer.
Investment decisions depend on the state of the economy existing at that particular point of time. E.g. if the economy is expanding then, an aggressive