Basic fundamental analysis

Fundamental analysis is the first stage of picking stocks. The idea is to analyse companies key financial information from their published quarterly/annual reports.

Stock market traders generally look for companies that register consistent big profits and show good earnings per share growth every year when buying stocks.

Tools are available to quickly filter through thousands of companies key financial data leaving you with companies that match your criteria (the wonderful power of computers!). This is also known as stock screening.

Example

You could set a filter that reads;

• profit over last 3 years [+15%]
• EPS growth over 2 years [+5%]
• current ratio [between 1.3-2.5]

and end up with a list of companies that match the criteria, you can then save these companies in a spreadsheet for example. Often the list will be given to you in ticker symbol format such as;

MSFT
HP
GRMN
EBAY

With this list, you can copy and paste them straight into your trading software, saving time and tedious work (thumbs up to computers again!). Now its time to progress to the second stage of analysis – technical analysis.

Fundamental analysis helps you significantly when trading shares. There’s no point buying shares in companies that do not produce good profits as the chances of their share price rising are low. Its all about stacking the odds of your stock trade in your favor through both stages of analysis, thus consequently greatly reducing the risk of trading shares.

Companies key financial information can be easily found on websites that allow you to register for free fantasy trading accounts. For a good stock screening website I recommend ADVFN.com , which still doesn’t charge for its screening tools unlike a lot of other websites.

View explanations of company key financial information.