Learning path 3 of 9
Fundamental analysis
Judge a business on its merits. Business models, growth, profitability, debt, valuation ratios, intrinsic value and the red flags of poor governance.
48 lessons in this path. Progress is saved in your browser as you go.
Fundamental analysis asks what a business is really worth and whether its price makes sense. It combines understanding the business itself, its products, customers and competitors, with the financial measures built from its statements.
The path is careful about limits. No single ratio tells you whether a share is cheap or expensive, and every valuation rests on assumptions about the future. You will learn to state those assumptions openly, test them, and leave room for being wrong.
Who this path is for
Learners who can read the three financial statements and want to evaluate companies. Comfortable with percentages and simple ratios.
What you will be able to do
- Describe how a company makes money and what protects it from competitors.
- Calculate and interpret valuation, return and debt ratios, and explain their limits.
- Build a simple discounted cash flow valuation and explain how sensitive it is to assumptions.
- Recognise governance problems and accounting red flags in annual reports.
Before you start
- Financial literacy and accounting: Every ratio in this path is calculated from the income statement, balance sheet or cash flow statement.
- Stock market foundations: Valuation compares a company's worth with its share price and market capitalisation.
The route, module by module
Take the modules in this order. Filled stops are lessons you have completed; dashed stops are still being written.
Module 1Understanding the business
How a company makes money, the industry it competes in, what protects it from rivals, and why some businesses are cyclical or capital hungry.
Module 2Growth and quality of earnings
Measuring revenue and earnings growth properly, separating recurring profit from one-offs, and watching for shareholder dilution.
Module 3Returns on capital
How much profit a business earns on the money invested in it. ROE, ROCE, ROA and returns on new investment, and how debt flatters some of them.
Module 4Debt, cash and financial strength
How much a company owes, whether it can service that debt, how much free cash it generates, and how it pays shareholders.
Module 5Valuation ratios
P/E, P/B, PEG, enterprise value, EV/EBITDA and yield measures, how to compare them with history and peers, and when they mislead.
Module 6Intrinsic value and discounted cash flow
Present value, discount rates, the cost of capital, discounted cash flow models, terminal value, scenarios and margin of safety.
- What intrinsic value means
- Present value and discounting
- Discount rates and the cost of equity
- Weighted average cost of capital (WACC)
- Discounted cash flow valuation
- Terminal value
- Sensitivity and scenario analysis
- Reverse DCF
- Comparable-company valuation
- Margin of safety
- Module test: Intrinsic value and discounted cash flow
Module 7Governance, capital allocation and red flags
Judging management and governance, how capital is allocated, related-party transactions, pledged promoter shares and accounting red flags.
Module 8Analysing different kinds of business
Why banks, insurers, asset-light businesses, commodity producers and real estate companies need their own measures and valuation methods.
Related paths
- Practical stock researchResearch a company from scratch. Products and customers, statements, competitors, management, exchange filings, red flags and a written research report.
- Investing and portfolio managementBuild and run a portfolio you can stick with. Compounding, diversification, asset allocation, funds, rebalancing and the behaviour that undoes good plans.