Guide For Fundamental Analysis


Share market means gambling. We have heard this sentence lots of times in our day-to-day routine. Before making any comments, we have to first understand the core of that topic, and then our review or point of view can generate maximum value.

So, let’s first understand why this term got popular among the people. In the share market, people can gain a huge amount of money and become rich. But, on the other hand, you can lose everything and become bankrupt as well.

Because of these two opposite results, the share market has become associated with gambling. However, that’s not true.

We have to understand who loses money in this market and who is earning, and then you will find the appropriate answer to your query.

There are two ways to earn money from this market. One is to do trading, and the second is to do investing. Those who choose the way of trading may lose money in this market, while those who choose the way of investing make money.

So, now it’s clear that if you engage in trading, then the share market is like gambling for you, and if you engage in investing, then this market is a wealth-generating machine for you.

Now, let’s understand what is required for investing.

First of all, you need to clear the concept of the stock market, where companies borrow money from people to run their businesses. The stock market is the medium to buy and sell the shares of that company.

Now that we have an idea about company shares, for buying quality company stock, we need to understand the fundamental analysis of that company.

Let’s start.

Fundamental Analysis –

When conducting fundamental analysis, you need to first understand the business model and industry of the company. To start fundamental analysis, you need the balance sheet of the company. Once you have the balance sheet, study the profit & loss statement. After that, you will need to analyze the following things:

PE Ratio –

It is the price-to-earnings ratio, which means how much the share price is in relation to the earnings of the share. A lower PE ratio is better for our analysis.


EPS stands for earnings per share, which represents how many total shares are in the market out of the total profit. A higher EPS ratio is better for the analysis.

Market Cap –

Market capitalization is another important element when analyzing a company. It shows the total valuation of the company.

With the help of a market cap, you can also decide that the company is small, medium, or large. Generally, large-cap companies are more stable than other companies.

The market cap of Mahindra & Mahindra Ltd is 2,14,503 crore rupees. This company deal with tractor and tractor implements for agriculture.

Promoter Holding –

You can say that the promoter is the owner of the company. It is always better for the promoter to have maximum shares. If he or his family owns more shares, it means that the promoter himself has more faith in the company. As per SEBI rules, the promoter should not have more than 75% stake.

If you want to find a good company then promoter should have more than 50% holding in the company.

Pledge Share –

Pledge share means the promoter has raised money on it by pledging his share. Sometimes when the promoter needs more money to run the business, they raise the money by placing their own share pledge.

But it is wrong if he spends the borrowed money on his personal things. We cannot trust such promoters. So if you want to choose a good company, preferably prefer a company with 0% pledge share.

Cash Flow –

Cash flow is a measure of whether a company is making money from whatever business it is doing. Some companies sell a lot but their own costs are even higher. Therefore, at the end of the year, even after selling so much, the company does not have any money left in hand. In such a case, the company has to take a loan to continue the business. We call this situation negative cash flow.

Conversely, some companies cut sales and keep their costs low. In such a case, the company has money left in hand. We call this situation positive cash flow.

Debt –

How any business can function in the future depends on the company’s debt. If the money from the business is used to pay off the debt, there is no use of such a business. It is true that running a business sometimes requires more money. But, a business that controls debt can thrive in the future.

Conclusion –

We can earn very good money from share market. For that fundamental analysis is very important. If you want to invest money in any company, you should first study that company and only then decide to invest.