Chapter: 9 Fundamentals of Financial Analysis

Section: 1 Fundamentals of Financial Analysis

It is important to invest in stocks of financially sound and profitable companies, not to mention growing. Invariably, a diagnostic study on the potential companies chosen for investment is important. In a nutshell, one should invest in stocks of companies that are financially stable, profitable and growing. 


Companies that are growing see the share prices appreciating in line with the growth potential. To spot growing and financially stable companies, financial analysis on the company is very useful. Though financial analysis is carried out on past numbers it helps in making investment decisions.


Following analysis tools are very useful in understanding performance of companies:


  • Ratio Analysis

  • Common Size Analysis

  • Trend Analysis