Chapter 3. The Basics of Fundamental Analysis

Fundamental analysis is the study of individual companies and how they perform in terms of

• Revenues

• Profits

• Assets

• Borrowings

In simple terms, most of the key financial ratios that you will see are manipulations of these four items. We look at the main ratios and their significance later in this chapter.

Why do we need to know about fundamental analysis? Because the company’s share price is ultimately the market’s reflection of how valuable that company is. If a company makes profits and these profits are growing year after year, with borrowings contained to low levels and revenues also growing, then this is an ideal company to invest in, provided you expect the company to continue growing ...

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