CHAPTER 11 The Financial Anatomy of a Company—Fundamental Analysis
Introduction
The two most common approaches to evaluating and selecting stocks are fundamental analysis and technical analysis. The goal of fundamental analysis is to determine a stock's equilibrium price or intrinsic value. Fundamentalists (those practicing fundamental analysis) hope to profit by purchasing stocks they estimate to be underpriced (whose market price is below the equilibrium value they have determined) and selling or shorting stocks they determine to be overpriced. Thus, the real objective of the fundamentalist is to earn abnormal returns by being able to identify mispriced securities. Technical analysis, on the other hand, involves studying trends in security ...
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