analysis is used to determine the intrinsic value of the share by examining the
underlying forces that affect the well being of the economy, Industry groups
and companies. Fundamental analysis is to first analyze the economy, then the
Industry and finally individual companies. This is called as top down approach.
¸ The actual value of a
security, as opposed to its market price or book value is called intrinsic value. The
intrinsic value includes other variables such as brand name, trademarks, and
copyrights that are often difficult to calculate and sometimes not accurately
reflected in the market price. One way to look at it is that the market
capitalization is the price (i.e. what investors are willing to pay for the
company and intrinsic value is the value (i.e. what the company is really
The top down approach of fundamental analysis
At the economy level, fundamental analysis focus on economic data
(such as GDP, Foreign exchange and Inflation etc.) to assess the present and
future growth of the economy.
At the industry level, fundamental
analysis examines the supply and demand forces for the products offered.
At the company level, fundamental
analysis examines the financial data (such as balance sheet, income statement
and cash flow statement etc.), management, business concept and competition.