Fundamental Analysis: What It Is, How It Works, and How to Use It

What Is Fundamental Analysis in Trading?

TradingView's help center defines the method in exactly these terms: fundamental analysis is a way to determine an asset's intrinsic, or true, value. The analysis considers not only the asset itself but also the company behind it, including its financial prospects and long-term sustainability.

The logic is simple. A stock has a price displayed by the exchange right now, and behind that stock is a business with revenue, profit, debt, and market share. Fundamental analysis evaluates the latter and compares it with the former. If the business generates more than the current market price implies, the security appears undervalued, and vice versa.

This leads to two practical conclusions. First, the method has a long time horizon: a gap between valuation and price can persist for several quarters. Second, the inputs used in the calculation are public documents, not opinions. The corporate data used in such calculations comes from the companies' own financial statements.

How Technical and Fundamental Analysis Differ

The debate over whether technical or fundamental analysis is better usually arises because the wrong question is being asked. One method looks for what to buy and at what valuation. The other looks for when to press the button. Specific charting tools are covered in a separate guide to technical analysis indicators, while applying the same approach to digital assets is discussed in the guide to technical analysis of cryptocurrencies.

The practical conclusion is this: fundamental analysis narrows down the list of securities, while technical analysis works within that selected list. One governs selection; the other governs execution.

What a Valuation Consists Of: Economy, Industry, and Company

1. 1

   Economy

   Key interest rate, inflation, employment, exchange rate

   ↓
2. 2

   Industry

   Demand, cycle stage, regulation, competitors

   ↓
3. 3

   Company

   Financial statements, multiples, debt, and cash flow

   ↓
4. 4

   Valuation conclusion

   Expensive, fairly valued, or cheap relative to the comparison benchmark

Diagram 1. The top-down analysis process. The levels are based on TradingView's help materials, which describe fundamental analysis as both macroeconomic and corporate analysis.

The top level is macroeconomics. The central bank rate, inflation, unemployment, and commodity prices create the environment in which every business operates. The unemployment rate and its effect on markets are covered separately: this is a classic example of an indicator that moves entire markets rather than a single security. The publication dates for these statistics are known in advance and collected in economic calendars, including the one available in the TradingView terminal.

The middle level is the industry. Here, the analysis focuses on demand, regulation, competition, and the cycle: a fertilizer producer and a chip manufacturer operate at different rhythms, so comparing them directly using a single ratio is meaningless.

The bottom level is the company. This is where financial reports come into play, providing the figures used to calculate all the metrics: revenue, profit, debt, and cash flow. The purpose of the three-level funnel is to read company figures in context. Strong financial results in a collapsing industry and weak financial results at the start of a cycle mean different things.

The Three Company Financial Statements You Will Need to Read

TradingView's guide to reading financial statements identifies exactly these three documents. Here is what each one contains:

1. Income statement. Shows income and expenses for a period. The key line items are Total revenue, cost of goods sold (COGS), operating expenses, Net income, and earnings per share (EPS).
2. Balance sheet. Shows what the company owns and what it owes. It is based on the equation: assets equal liabilities plus shareholders' equity.
3. Cash flow statement. Shows cash inflows and outflows. It is needed to distinguish accounting profit from actual cash.

The formal composition of financial statements is set by the relevant standard. Under the current IAS 1, a complete set includes a statement of financial position; a statement of profit or loss and other comprehensive income; a statement of changes in equity; a statement of cash flows; and notes containing accounting policies. A retrospective restatement also requires an opening statement of financial position as of the beginning of the preceding period. The complete set must be presented at least annually, with comparative information for the preceding year.

Important. IAS 1 is approaching the end of its life: it will be replaced by IFRS 18, which is mandatory for annual reporting periods beginning on or after January 1, 2027, with earlier application permitted. The format of familiar financial statements will change over the next few years, but their substance will not.

What Multiples Really Compare

Absolute figures cannot be compared directly: a profit of one hundred billion at a giant company and one hundred million at a small company reveal nothing about which stock is more expensive. Multiples solve this problem by dividing one metric by another.

There are three rules without which the table turns into guesswork. First, comparisons work only within the same industry because normal ranges differ between retailers and banks. Second, the company's own history matters more than its sector peers because it shows whether the stock is expensive relative to itself. Third, a low ratio often indicates not a bargain but a risk that the market already knows about.

Where to Find Primary Figures and How to Verify Platform Data

Until you find a figure in the original document, it remains someone else's retelling. The source map for the two main jurisdictions looks like this.

Russia. Issuer disclosures are governed by the Federal Law “On the Securities Market” (39-FZ, Article 30), the Federal Law “On Joint-Stock Companies” (208-FZ, Article 92), and Bank of Russia Regulation 714-P. New disclosure rules have been in force since October 1, 2021: financial indicators in an issuer's report are calculated under IFRS, group disclosures are prepared on a consolidated basis, and the issuer's report and list of affiliates are published every six months. The documents themselves are available on the company's website and through one of the disclosure centers accredited by the Bank of Russia under Regulation 435-P. The Bank of Russia maintains the current list of such agencies on its website; it includes Interfax—Corporate Information Disclosure Center, AZIPI, PRIME, Analysis, Consulting and Marketing, and the Comprehensive Information and News Disclosure System.

United States. All disclosures are filed electronically through the Securities and Exchange Commission's EDGAR system and immediately become public. The annual form is 10-K, the quarterly form is 10-Q, and companies report material events on Form 8-K, often within four business days after the event.

1. Once a year

   Annual set of financial statements

   IAS 1: at least once a year with comparative information

2. Every six months

   Issuer report in Russia

   Bank of Russia rules; indicators are calculated under IFRS

3. Quarterly

   Form 10-Q in the United States

   Filed electronically through EDGAR

4. Upon an event

   Form 8-K in the United States

   Often within four business days after the event

Diagram 2. Primary disclosure calendar. The frequency of annual financial statements follows IAS 1; the semiannual issuer report follows the Bank of Russia rules effective October 1, 2021; and Forms 10-Q and 8-K follow the description of issuer reporting on sec.gov.

Another aspect of data quality is the listing tier. The Moscow Exchange divides securities into three tiers: two quotation lists and an unlisted segment. For the first tier, an issuer must have existed for at least three years and have IFRS financial statements for three completed years. For the second tier, it generally must have existed for at least one year and have IFRS statements for one completed year. These conditions do not apply to the third tier. The legal disclosure requirement applies at all three tiers, but the depth of historical data available for analysis differs significantly.

How to Analyze a Company Step by Step

The process below can be repeated for any security and does not require paid services.

1. Establish the backdrop. Check the interest rate, inflation, and upcoming statistical release dates in an economic calendar. This is the environment for the period over which you plan to hold the position.
2. Describe the industry. What drives demand, what stage of the cycle is it in now, who are the competitors, and is there regulatory pressure?
3. Download the original report. Use the issuer's website or a disclosure center for Russia, and EDGAR for the United States. Record the period: year, half-year, or quarter.
4. Record the basic line items. Revenue, net income, EBITDA, operating cash flow, net debt, and equity. Use one period and the same reporting standard for every figure.
5. Calculate the multiples yourself. Use the price on a specific date and perform the division. Calculating them yourself ensures that you know exactly which figures you divided.
6. Compare three times. Compare the result with the company's own history, with two or three industry competitors, and with your own previous valuation of the security.

1. 1

   Establish the macroeconomic backdrop

   Interest rate, inflation, statistical release dates

   ↓
2. 2

   Describe the industry

   Demand, cycle, regulation, competitors

   ↓
3. 3

   Download the original report

   Issuer's website, disclosure center, or EDGAR

   ↓
4. 4

   Record the basic line items

   One period and one reporting standard

   ↓
5. 5

   Calculate the multiples

   Calculate them yourself using the price on a fixed date

   ↓
6. 6

   Compare three times

   History, competitors, and your previous valuation

Diagram 3. A self-directed analysis process. The steps are based on the composition of financial statements under IAS 1 and on disclosure requirements, not on someone else's ready-made methodology.

The conclusion of the analysis should fit into one sentence: the security appears expensive, fairly valued, or cheap relative to its industry and its own history. That sentence is then converted into entry rules, and those rules belong in the trader's trading plan, not just in the trader's head.

Why the Same Metrics Differ Between Services

This is one case where a ready-made screener table can mislead a beginner more than having no table at all. There are four common reasons for discrepancies:

• Different periods. One service uses the latest completed financial year, while another uses the total for the last four quarters. The earnings in the denominator differ, so the ratio differs.
• Different standards. Russian companies publish both consolidated IFRS statements for the group and statements for the legal entity under national accounting rules. The profit figures in them can legitimately differ.
• Different price dates. The numerator of P/E changes every trading day. Services update it at different times.
• Different definitions. Metrics such as EBITDA and net debt are not defined by the standards as a single formula, so each provider calculates them using its own methodology.

Verification takes five minutes: open the original report, find the line item the service used in the denominator, and calculate the ratio manually using the price on a fixed date. If it matches, you can continue to trust the table. If it does not, you now know exactly which adjustment that service uses.

How to Apply Fundamental Analysis to Currencies, Commodities, and Cryptocurrencies

In the currency market, country statistics take the place of financial statements. In its description of the floating exchange-rate regime, the Bank of Russia lists the factors that influence the exchange rate: import and export prices, inflation and interest-rate levels in Russia and abroad, economic growth rates, investor sentiment, and central bank decisions. The regulator does not set a target level for the exchange rate; the rate is determined by the balance of currency supply and demand. This is the essence of “forex fundamental analysis”: comparing two sets of macroeconomic data rather than searching for the correct price level.

For commodities, the physical balance is calculated: production, inventories, consumption, logistics, seasonality, and weather. The relevant government agencies publish these figures. For oil, the EIA publishes a report on weekly U.S. inventories and refinery utilization, while the same agency's STEO provides a monthly energy-market outlook. For grains and oilseeds, the U.S. Department of Agriculture's monthly WASDE report provides the supply-and-demand balance. The standard instrument in such a market is a futures contract, whose mechanics are explained in our guide to exchange-traded futures.

1. 8 times a year

   Bank of Russia key interest rate

   Press release at 13:30 MSK, followed by a press conference

2. Monthly

   U.S. inflation, Consumer Price Index

   Bureau of Labor Statistics, 8:30 Eastern Time

3. Weekly

   U.S. oil inventories and refining

   The EIA report is usually released on Wednesdays, or Thursdays during holiday weeks

4. Monthly

   Grain supply-and-demand balance

   U.S. Department of Agriculture WASDE report, 12:00 Eastern Time

Diagram 4. Regular market releases. The frequencies and times come from the websites of the Bank of Russia, the U.S. Bureau of Labor Statistics, the EIA, and the U.S. Department of Agriculture.

Digital assets have no financial statements at all, so the analysis uses verifiable network and project parameters: the coin issuance schedule, on-chain activity, fees, the number and distribution of holders, and the development team's status and funding. Some of this data is public and verifiable on the blockchain, while some relies on statements from the team. Distinguishing these two layers is essential: the SEC explicitly warns that unregistered crypto-asset offerings may not disclose key information needed to make an informed decision.

How to Combine the Fundamental Picture with an Entry Point on the Chart

A practical combination works like this. Fundamental analysis produces a shortlist of securities with understandable valuations. The chart shows which of them currently offers a suitable entry point. Risk management in trading determines the exit rules and acceptable loss.

Who This Approach Is Suitable For

Suitable if

• You are deciding which instruments should be on your watchlist at all
• You are prepared to read original reports rather than ready-made tables
• You work with a time horizon of several months or more
• You want to understand why an asset is worth its current price

Not suitable if

• You are looking for an entry point and a protective stop-loss level
• You trade intraday moves of only a few price increments
• You expect an unambiguous answer to buy or sell
• You are willing to accept a service's valuation without checking the primary source

Card 1. The method's scope of application. Fundamental analysis governs selection, while trade execution remains the responsibility of the chart and the plan.

The calendar presents another trap. Financial statements and macroeconomic statistics are released on dates known in advance, and during those minutes volatility rises sharply while spreads widen. A position opened on the basis of a sound valuation can be stopped out by release-related noise. Report and statistical release dates should be included in the plan just like price levels.

A backtest helps evaluate how this combination would have performed historically: fundamental screening defines the set of instruments, while the entry rules are tested separately on that set. This reveals which component actually produces the result—the choice of security or the execution rules.

Risks and Limitations

• The method does not provide an entry signal and does not replace exit rules. A “cheap” valuation can remain correct yet unprofitable for months.
• Data arrives with a delay: financial statements are published on set dates, while prices change continuously.
• Financial statements reflect the past. A regulatory change, sanctions, an accident, or the loss of a key customer can invalidate the model after it has already been built.
• Academic results from selecting securities using accounting indicators were obtained from portfolios and historical samples. Joseph Piotroski's paper on the use of historical financial statement information in value investing explicitly notes that among companies with high book-to-market ratios, fewer than 44% of individual stocks outperform the market during the two years after selection. The method shifts the distribution of outcomes across the entire basket; it does not promise a result for any one security.
• The method's horizon is not a trading horizon. The announcement of the 2013 Nobel Prize in Economic Sciences states this directly: it is impossible to predict stock and bond prices over the next few days or weeks, but it is quite possible to foresee the broad course of those prices over a period of three to five years.
• The valuation is subjective at the input stage: different assumptions about future growth produce different fair values from the same financial statements.
• Figures from different services may disagree, and the discrepancy cannot be resolved without consulting the original document.

Disclaimer. This is not personalized investment advice. Markets are volatile, and trading involves the risk of losing capital. Past results do not guarantee future results.

Sources

• Introduction to Fundamental Analysis, TradingView Help Center, https://www.tradingview.com/support/solutions/43000759574-introduction-to-fundamental-analysis-on-tradingview/
• How to Read Financial Statements, TradingView Help Center, https://www.tradingview.com/support/solutions/43000760059-how-to-read-financial-statements/
• IAS 1 “Presentation of Financial Statements,” IFRS Foundation, https://www.ifrs.org/issued-standards/list-of-standards/ias-1-presentation-of-financial-statements/
• IFRS 18 “Presentation and Disclosure in Financial Statements,” IFRS Foundation, https://www.ifrs.org/issued-standards/list-of-standards/ifrs-18-presentation-and-disclosure-in-financial-statements/
• Issuer Disclosures: New Bank of Russia Rules, https://www.cbr.ru/press/event/?id=6731
• Bank of Russia Regulation 714-P on Issuer Disclosures, https://www.consultant.ru/document/cons_doc_LAW_352306/
• Accredited Information Agencies, Bank of Russia, https://www.cbr.ru/admissionfinmarket/navigator/inf_ag/ (register: https://www.cbr.ru/vfs/finmarkets/files/supervision/list_information_agency.xlsx)
• Exchange Act Reporting and Registration: Forms 10-K, 10-Q, and 8-K, U.S. Securities and Exchange Commission, https://www.sec.gov/education/smallbusiness/goingpublic/exchangeactreporting
• Search Filings, EDGAR, U.S. Securities and Exchange Commission, https://www.sec.gov/search-filings
• Listing Tiers and Issuer Requirements, Moscow Exchange, https://www.moex.com/a2584
• Joseph D. Piotroski, Value Investing: The Use of Historical Financial Statement Information, Stanford Graduate School of Business, https://www.gsb.stanford.edu/faculty-research/publications/value-investing-use-historical-financial-statement-information
• The 2013 Prize in Economic Sciences, Press Release, The Royal Swedish Academy of Sciences, https://www.nobelprize.org/prizes/economic-sciences/2013/press-release/
• Bank of Russia Exchange-Rate Regime, https://www.cbr.ru/dkp/exchange_rate/
• Consumer Price Index, U.S. Bureau of Labor Statistics, https://www.bls.gov/cpi/
• Weekly Petroleum Status Report, U.S. Energy Information Administration, https://www.eia.gov/petroleum/supply/weekly/
• Short-Term Energy Outlook, U.S. Energy Information Administration, https://www.eia.gov/outlooks/steo/
• World Agricultural Supply and Demand Estimates, U.S. Department of Agriculture, https://www.usda.gov/about-usda/general-information/staff-offices/office-chief-economist/world-agricultural-outlook-board/wasde-report
• Crypto Asset Securities, SEC Investor Alert, https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-alerts/crypto-asset-securities

Frequently Asked Questions

What is fundamental analysis in financial markets?

It is an estimate of an exchange-traded asset's fair value based on business and economic data: the company's financial statements, industry conditions, and macroeconomic indicators. The result is compared with the current market price to determine whether the asset is currently expensive or cheap. The method is applied to stocks and bonds on exchanges, while country statistics and the balance of supply and demand replace company financial statements in currency and commodity markets.

How do you perform fundamental analysis on a stock?

Start with the macroeconomic backdrop and the industry, then download the company's original financial report from the issuer's website or an official disclosure center. Record revenue, profit, EBITDA, cash flow, and debt for a single period. Calculate the multiples yourself using the price on a fixed date. Compare the result with the company's own history and with industry competitors. Summarize the conclusion in one phrase: expensive, fairly valued, or cheap.

Technical or fundamental stock analysis—which should you choose?

You do not need to choose between them because they answer different questions. Fundamental analysis shows which security deserves attention and at what valuation. Technical analysis shows where that security currently offers a suitable entry point and where to place a protective stop-loss order. A typical combination works like this: fundamental analysis produces a shortlist, while the chart and risk management govern trade execution.

How does fundamental analysis work in forex?

A currency pair has no financial statements, so you analyze two economies at once. The analysis considers the central bank rate, inflation, employment, the trade balance, and statements from the regulators responsible for both currencies. Publication dates are known in advance and collected in economic calendars. The practical conclusion usually assesses the relative strength of one economy against the other rather than predicting a specific price level.

What are the fundamentals of securities analysis?

The basics include the ability to read a company's three financial statements, an understanding of multiples and their limitations, knowledge of disclosure requirements in your jurisdiction, and the ability to verify a figure against the original document. Industry-specific factors and macroeconomics come next. Another essential element is understanding the method's limitations: it does not provide an entry point or guarantee the outcome of an individual security.

Where can I find an example of fundamental analysis?

The most useful example is one you build yourself. Choose any company in the highest listing tier, download its latest IFRS report, record six basic line items, and calculate four multiples using the price on a fixed date. Then compare your figures with any public screener and explain the discrepancy. This analysis takes about an hour and teaches you more than reading ready-made reviews.