Fundamental analysis: working out what a business is worth
Ten concepts that take you from an annual report to a defensible view of value, and the honest limits of each one.
Two questions, asked in this order
Fundamental analysis asks two questions, and the order is not optional. First: is this a good business? Second: is it available at a sensible price? Skipping the first and going straight to valuation produces cheap companies that deserve to be cheap. Skipping the second produces excellent companies bought at prices that take a decade to justify.
The first question is answered by the accounts and by judgement. Revenue growth and margins show whether the business is getting bigger and whether size is making it more profitable. Debt and solvency show whether it can survive a bad two years. Moat and management quality are the two least quantifiable and most decisive items on the list.
The second question is answered by the valuation measures. EPS, P/E and P/B are quick relative checks; discounted cash flow is the only one that attempts an absolute answer, and it is the most sensitive to assumptions. A ratio is a shortcut for a discounted cash flow you have not done, which is fine as long as you remember that is what it is.
The ten concepts, and what each one can and cannot tell you
Quality first, then price. Every measure below carries a limitation worth knowing before you rely on it.
Revenue and Growth Analysis
Is the business getting bigger, and is the growth coming from volume, price or acquisition. Growth bought with debt is a different thing from growth funded by operations.
Margin Analysis
What share of each rupee of revenue survives to the bottom. A margin that expands with scale suggests pricing power; one that shrinks suggests competition.
EPS and Earnings Analysis
Profit attributed to each share. Sensitive to share count, so buybacks and issues change it without the business changing at all.
P/E Ratio and Valuation
Price per rupee of earnings. Useful for comparing similar companies, misleading across industries, and meaningless when earnings are near zero or negative.
Price against book value. Informative for banks and asset-heavy businesses, close to useless for a services company whose real assets are not on the balance sheet.
DCF Valuation
The only method that tries for an absolute answer. Also the one most easily bent, because a small change in the growth or discount assumption moves the result enormously.
Debt and Solvency Analysis
Whether the business survives a bad stretch. Interest cover and the debt to equity ratio matter more than the absolute debt figure.
Moat and Competitive Advantage
Why the returns are not competed away. Brand, switching cost, network effect, scale or regulation. Without one, high margins are temporary by definition.
Management Quality
Capital allocation record, related party dealings, promoter pledging, and whether previous guidance was met. The least quantifiable item and often the most decisive.
Sector and Industry Analysis
The context that makes a ratio readable. A twenty times P/E is expensive in one industry and unremarkable in another, and cyclicals invert the usual reading entirely.
The course that teaches this end to end
Sixteen lessons that start with the mindset and finish with a full equity research note.
The calculators that do the arithmetic
Returns, yields and discounting. The judgement stays yours.
Where analysis turns into a decision
The choices an investor actually faces once the analysis is done.
Test yourself on Fundamental Analysis
Ten topics spanning valuation ratios, statement analysis and the qualitative checks. Recall matters here because the ratios are easy to mix up and each has a different denominator.
Open the study tool →Before you start
Is a low P/E always a buying opportunity?+
How much of fundamental analysis can actually be quantified?+
Do I need fundamental analysis if I only buy index funds?+
The other nine Learn topics
Every domain follows the same shape: the concept map first, then the lessons that teach it, then the tools and scenarios that put it to work.