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What is fundamental analysis? Here are the basics

Fundamental analysis determines the value of a security by analyzing the financial strength of its issuing company.

All the information fundamental analysts need to analyze a stock can be found in a company's financial statements.

What is intrinsic value?

Fundamental analysts use this company information to determine a security's intrinsic value. Intrinsic value is the value of a security independent of its market price.

Fundamental analysis is based on the belief that a security's market price moves toward its intrinsic value. When the stock's intrinsic value is higher than its market price, the fundamental analyst buys it; when it is below, the analyst sells it.

Using fundamental analysis to determine whether to buy or sell a security is a complex process. The analyst first looks at the overall health of the economy and trends in interest rates. Next, the analyst examines a company's entire industry before moving on to evaluating the company itself.

Dive Deeper: Analyzing investments: Fundamental analysis, technical analysis, and more

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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