Fundamental Analysis is a method of analyzing a security to make investment decisions based on the company’s underlying value. This method of analysis is the opposite of Technical Analysis. Whilst chart patterns and trend analysis are the most common factors of Technical Analysis, price-to-earnings and price-to-book ratios are the most common factors of Fundamental Analysis.
Fundamental analysts often use top-down or bottom-up analysis. Top-down analysis involves evaluating the overall economy or an industry as a precursor to further analysis of particular assets in that economy or industry. Bottom-up analysis focuses attention on a specific company rather than on the industry in which that company operates or on the economy as a whole.