Fundamental Analysis — What It Is and How to Evaluate a Company
What is fundamental analysis, what indicators to use and how to evaluate whether a company's shares are worth buying.
What is fundamental analysis?
Fundamental analysis is a method of valuing financial instruments based on economic, financial, and qualitative data. The goal is to determine the intrinsic value of a company and compare it to market price.
If intrinsic value > market price → company is undervalued (opportunity). If intrinsic value < market price → company is overvalued (expensive).
Key indicators
P/E (Price to Earnings)
Stock price / earnings per share. Tells you how many years of earnings you're paying for a company.
- P/E 10 → cheap company (or low growth)
- P/E 30+ → expensive company (or dynamically growing)
P/B (Price to Book)
Stock price / book value per share. P/B < 1 means the market values the company below its net assets.
ROE (Return on Equity)
Net profit / shareholders' equity. Measures how effectively the company uses shareholders' capital. ROE > 15% is usually a good result.
Net debt / EBITDA
How many years of operating profit are needed to pay off debt. Below 3 — comfortable level.
Dividend
Dividend yield = dividend per share / share price. Regular, growing dividends are a sign of a healthy company.
How to conduct fundamental analysis?
1. Macroeconomic analysis
What's the state of the economy? Are interest rates rising? What's inflation? This affects all companies.
2. Sector analysis
Is the industry growing? What are the trends? E.g., tech sector grows differently than mining.
3. Company analysis
- Revenue and profits (growing? stable?)
- Margins (gross, operating, net)
- Debt
- Management and strategy
- Competitive advantage (moat)
Where to find data?
- Quarterly and annual reports — on company website (Investor Relations section)
- Biznesradar.pl — Polish companies, indicators, charts
- Stooq.pl — historical data and indicators
- Bankier.pl — analyses and news
- EDGAR / SEC — American companies
FA vs TA — which is better?
| Feature | Fundamental analysis | Technical analysis |
|---|---|---|
| Question | What to buy? | When to buy? |
| Horizon | Long-term | Short-/medium-term |
| Data | Financial, macro | Price, volume |
| Effort | High (reading reports) | Medium (charts) |
Best results come from combining both approaches.
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