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Fundamental analysis is a technique of evaluating the intrinsic value of an asset and analyzing the factors that could influence its price in the future. This form of analysis is based on macro and microeconomic factors that influence the stock price. Macroeconomic factors include FED Meetings, Pandemic situations, and RBI Monetary Policy Meetings. Some of the examples of microeconomic factors include Company Analysis, Management Analysis, and, Financial Statement Analysis.

Step 1: Know the Economy

Before investing in a stock, you should know the economic scenario of the country. It is always better to keep yourself updated by reading newspapers and watching business news regularly. Various events impact the stock markets directly. For instance, Elections, RBI Policy, Federal meetings, Pandemic situations are few examples of the same.

Step 2: Know the Industry

To start investing in a stock, you should start with the industry which you have complete knowledge. For instance, if you are working in the IT industry then it is better to invest in IT stock, and if you are working in a bank then it is better to invest in banking stocks. It will be easier for you to get the numerical data of that industry. This strategy is only for beginners.

Step 3: Know the Company

It is important to have complete information about the management, products, history, and competitors of the company before you invest in the company. Kindly browse the website and watch the videos of the management interviews to know the plans and vision of the company.

Step 4 : Know the Sales & Profits

It is important for beginners to go through the financial statements and check the profits and sales of the company before investing in the stock. The revenues and profits should be in the increasing trend and if they are decreasing than there should be the proper justification from the management.

Step 5: Know the Debt of the Company

High debt is not a good sign for the progress of a company. It is always better to invest in a debt-free company because debt comes with interest that is to be paid from the profits of shareholders. Companies with a low debt-equity ratio show the promoters’ commitment towards the business. Debt – Equity ratio to be checked before investing and there are no particular criteria for this ratio, however, you should compare Debt -Equity ratio of the industry of the same type before investing in a stock. There are various capital-intensive industries such as oil and gas refining, telecommunications, and power, which require significant financial resources and a large amount of money to produce goods or services. A Higher Debt-Equity ratio doesn’t mean risky business. Debt- Equity ratio varies from business to business. For instance, the IT industry would have less debt and the same to be compared with companies in the same industry.

Disclaimer: The above simple steps are for beginners, and it is advisable to have complete knowlege of Fundamental and Technical Analysis for profitable trading and investing.

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