The importance of fundamental analysis for making investment decisions (case study)

Vivek Kumar Singh

Master's thesis

Abstract:

A method for determining a company's or asset's intrinsic value by examining its financial and economic indicators is called fundamental analysis. For investors looking to make knowledgeable investment decisions, this method is crucial because it provides a deep understanding of a company's financial health, growth prospects, and potential risks. One of the main benefits of fundamental analysis for investors is the ability to identify assets that are overvalued or undervalued by calculating intrinsic value which might be overvalued but not should be in overbought zone. So, that it still creates opportunity for investors to buy stocks at current price. By examining a company's financial statements, which include the income statement, balance sheet, and cash flow statement, investors can discover more about its revenue and profitability trends as well as its ability to generate cash flows. Investors can evaluate whether a company is trading at a discount or a premium to its fair value by market value using this information and what would be prospects of company. So, that it still create opportunity for investors to buy stocks even if it is overvalued but it should not be in overbought zone. Furthermore, a company's potential for long-term growth can be revealed by fundamental analysis. The ability of a company to generate long-term growth can be evaluated by investors by considering its business strategy, competitive advantages, and market trends. This can help investors make investment decisions that are in line with their long-term goals and risk tolerance. Not to mention, fundamental analysis can help investors identify potential risks associated with an investment. By examining a company's financial position, debt load, and liquidity, investors can identify potential early warning signs of financial distress or bankruptcy risk. This information can be used by investors to make informed decisions about risk management and asset allocation. In general, fundamental analysis is a key tool for investors who want to make informed investment decisions. By providing information about a company's financial health, growth prospects, and potential risks, this approach can help investors find undervalued assets and make investment decisions that are consistent with their long-term goals and risk tolerance.

Keywords

Fundamental analysis, Investments, Stocks, Returns

Language used: English

Date on which the thesis was submitted / produced: 4. 4. 2023

Thesis defence

• Date of defence: 31. 5. 2023
• Supervisor: doc. Ing. Lubomír Civín, CSc. MBA
• Reader: Tomáš Šídlo, PhDr., externi

Czech University of Life Sciences Prague

Faculty of Economics and Management

Master programme:
Business Administration