Glossary
Fundamental analysis
Judging a company by its business (sales, profits, cash, debt) rather than by its share-price chart.
Fundamental analysis asks what a business is worth and how healthy it is, using its financial statements: the income statement, the balance sheet and the cash flow statement.
An analyst looks at how fast sales grow, how much profit the company keeps, how much cash it really produces, how much it owes and what the market pays for all of it. The opposite approach, technical analysis, studies price and volume patterns instead.
Fundamentals change slowly, once a quarter when a company reports, so fundamental analysis suits investors who hold for years rather than days.
Related terms
- Free cash flow: The cash a business produces from its operations after paying for the investment it needs to keep going.
- Return on invested capital (ROIC): How much profit a company earns on the money invested in it by shareholders and lenders.
- Stock screener: A tool that filters thousands of stocks down to the few that meet your rules.