Many investors want to learn how to do fundamental analysis of stocks but feel overwhelmed by the complexity. Choosing between thousands of stocks in indices like NIFTY 500 and NIFTY 200 requires knowing how to do fundamental analysis effectively and systematically.
This comprehensive guide shows you exactly how to do fundamental analysis of stocks using Dhanarthi Stock Screener, making the process accessible, efficient, and actionable for investors at every level.
Quick Summary
Learning how to do fundamental analysis of stocks is essential for successful investing. A stock screener simplifies the process by filtering thousands of options based on key financial criteria, making it easier to understand how to do fundamental analysis systematically.
Whether you're learning how to do fundamental analysis for the first time or refining your approach, this guide provides step-by-step instructions using Dhanarthi Stock Screener to perform comprehensive stock analysis.
Understanding how to do fundamental analysis of stocks properly helps you make informed investment decisions based on company value rather than market emotions.
Our Focus in This Article
Understanding how to do fundamental analysis of stocks
Key principles of fundamental analysis
Step-by-step guide on how to do stock analysis
Using Dhanarthi Stock Screener for fundamental analysis
Practical examples of how to do fundamental analysis
Common mistakes and best practices
What is Fundamental Analysis of Stocks?
Before learning how to do fundamental analysis of stocks, you need to understand what it is. Fundamental analysis is the method of evaluating a company's intrinsic value by examining its financial health, business model, competitive position, and growth potential.
When you learn how to do fundamental analysis of stocks, you evaluate:
Financial Performance: How profitable is the company? Is it growing? Learning how to do fundamental analysis starts with understanding financial statements.
Valuation: Is the stock price justified by the company's earnings and assets? Knowing how to do fundamental analysis helps you determine if a stock is cheap or expensive.
Business Quality: Does the company have competitive advantages? Understanding how to do fundamental analysis includes assessing business sustainability.
Growth Potential: Can the company grow revenue and profits? Learning how to do fundamental analysis means evaluating future prospects.
This guide teaches you how to do fundamental analysis of stocks systematically using proven methods and powerful tools.
Why Learn How to Do Fundamental Analysis of Stocks?
Understanding how to do fundamental analysis of stocks provides multiple benefits:
Make Informed Decisions
Learning how to do fundamental analysis helps you invest based on company value rather than tips, rumors, or emotions.
Identify Undervalued Opportunities
Knowing how to do fundamental analysis of stocks helps you find quality companies trading below their intrinsic value.
Avoid Overvalued Stocks
Understanding how to do fundamental analysis protects you from overpaying for stocks, even if they're popular.
Build Long-Term Wealth
Learning how to do fundamental analysis of stocks properly enables sustainable wealth creation through intelligent investing.
Gain Investment Confidence
Mastering how to do fundamental analysis gives you confidence in your investment decisions and reduces anxiety.
Step-by-Step: How to Do Fundamental Analysis of Stocks
This section provides a complete guide on how to do fundamental analysis of stocks systematically.
Step 1: Understand the Business
The first step in how to do fundamental analysis of stocks is understanding what the company does:
Business Model: How does the company make money? Understanding how to do fundamental analysis starts with knowing the revenue sources, customer base, and value proposition.
Industry Position: Is it a leader or follower? Learning how to do fundamental analysis includes assessing competitive position.
Products/Services: What does it sell? How differentiated are its offerings? This is essential when learning how to do fundamental analysis of stocks.
Target Market: Who are its customers? How large is the addressable market? Important for how to do fundamental analysis properly.
Step 2: Analyze Financial Statements
Learning how to do fundamental analysis of stocks requires examining three key financial statements:
Income Statement Analysis (How to Do Fundamental Analysis of Profitability):
Revenue trends: Is it growing consistently?
Profit margins: Net margin, operating margin, gross margin
Earnings per share (EPS): Growing or declining?
Operating expenses: Are they controlled or rising?
When learning how to do fundamental analysis, focus on multi-year trends, not single years.
Balance Sheet Analysis (How to Do Fundamental Analysis of Financial Health):
Assets: What does the company own?
Liabilities: What does it owe? Focus on debt levels
Equity: Shareholders' stake in the company
Working capital: Short-term financial health
Understanding how to do fundamental analysis of stocks includes assessing financial stability through balance sheet examination.
Cash Flow Statement Analysis (How to Do Fundamental Analysis of Cash Generation):
Operating cash flow: Cash from core business operations
Investing cash flow: Capital expenditures and investments
Financing cash flow: Debt, dividends, share buybacks
Free cash flow: Cash available after capital expenditures
Learning how to do fundamental analysis means recognizing that profits and cash flow can differ significantly.
Step 3: Calculate and Interpret Key Ratios
Knowing how to do fundamental analysis of stocks requires understanding financial ratios:
Valuation Ratios (How to Do Fundamental Analysis of Price):
P/E Ratio (Price-to-Earnings): Stock price ÷ EPS
Low P/E may indicate undervaluation
High P/E may suggest growth expectations or overvaluation
Compare to industry peers and historical average
P/B Ratio (Price-to-Book): Market price ÷ Book value per share
Values < 1 may indicate undervaluation
Compare within the same industry
P/S Ratio (Price-to-Sales): Market cap ÷ Total revenue
Useful for companies with low or negative earnings
Dividend Yield: Annual dividend ÷ Stock price
Important for income-focused investors
Profitability Ratios (How to Do Fundamental Analysis of Efficiency):
ROE (Return on Equity): Net income ÷ Shareholders' equity
Measures how efficiently the company uses shareholder money
Good companies typically have ROE > 15%
ROA (Return on Assets): Net income ÷ Total assets
Shows how efficiently the company uses all assets
Net Profit Margin: Net profit ÷ Revenue × 100
Higher margins indicate better profitability
Compare within industry (margins vary by sector)
Operating Margin: Operating profit ÷ Revenue × 100
Shows operational efficiency
Financial Health Ratios (How to Do Fundamental Analysis of Safety):
Debt-to-Equity: Total debt ÷ Total equity
Lower is generally safer (< 1 is good, < 0.5 is excellent)
High debt increases risk, especially in downturns
Current Ratio: Current assets ÷ Current liabilities
Measures short-term liquidity
Should be > 1 (ideally > 1.5)
Interest Coverage: EBIT ÷ Interest expense
Shows ability to service debt
Should be > 3 (higher is safer)
Growth Ratios (How to Do Fundamental Analysis of Expansion):
Revenue Growth: (Current revenue - Previous revenue) ÷ Previous revenue × 100
Consistent growth > 15% is good
Earnings Growth: Similar calculation for earnings
Growing earnings indicate business expansion
EPS Growth: Track per-share earnings over time
Important for shareholder value creation
Understanding how to do fundamental analysis of stocks means knowing which ratios matter most for your investment strategy.
Step 4: Assess Competitive Advantages
Learning how to do fundamental analysis of stocks includes evaluating competitive moats:
Brand Power: Does the company have strong brand recognition? Strong brands command pricing power, essential when learning how to do fundamental analysis.
Network Effects: Does value increase as more people use the product? Understanding how to do fundamental analysis includes recognizing network advantages.
Cost Advantages: Can it produce cheaper than competitors? Important in how to do fundamental analysis of competitive position.
Switching Costs: How difficult is it for customers to switch? Key factor when learning how to do fundamental analysis of stocks.
Patents/IP: Does it have protected intellectual property? Critical in how to do fundamental analysis of technology and pharma companies.
Step 5: Evaluate Management Quality
Knowing how to do fundamental analysis of stocks requires assessing leadership:
Track Record: Has management delivered on past promises? Important when learning how to do fundamental analysis.
Capital Allocation: How wisely do they invest shareholder money? Essential in how to do fundamental analysis of management effectiveness.
Transparency: Are they honest and clear in communications? Key aspect of how to do fundamental analysis.
Compensation: Are incentives aligned with shareholders? Understanding how to do fundamental analysis includes examining executive pay.
Insider Ownership: Do leaders own significant stock? Important signal when learning how to do fundamental analysis of stocks.
Step 6: Determine Intrinsic Value
Understanding how to do fundamental analysis of stocks includes valuation:
Relative Valuation (How to Do Fundamental Analysis Using Comparisons):
Compare P/E, P/B ratios to industry peers
Compare to company's historical averages
Identify if stock is cheap or expensive relative to alternatives
Absolute Valuation (How to Do Fundamental Analysis Using DCF):
Discounted Cash Flow (DCF) analysis
Estimate future cash flows
Discount to present value
Compare to current stock price
Learning how to do fundamental analysis means developing a sense of what a company is truly worth.
Step 7: Consider Risks
Knowing how to do fundamental analysis of stocks includes risk assessment:
Business Risks: Competition, technological disruption, market changes
Financial Risks: Debt levels, cash flow problems, poor capital allocation
Industry Risks: Regulatory changes, cyclical downturns, structural decline
Management Risks: Poor leadership, governance issues, lack of succession planning
Understanding how to do fundamental analysis comprehensively means identifying and weighing risks against potential returns.
How to Do Fundamental Analysis with Dhanarthi Stock Screener
Now let's see how to do fundamental analysis of stocks efficiently using Dhanarthi Stock Screener:
Using the Stock Screener - Step-by-Step Guide
Step 1: Access the Stock Screener Open Dhanarthi Stock Screener on the app or website. This tool makes learning how to do fundamental analysis of stocks much more efficient.
Step 2: Select Your Universe Choose an index to screen:
NIFTY 50: For large-cap blue chips (when learning how to do fundamental analysis of stable companies)
NIFTY 200: For balanced coverage (good when learning how to do fundamental analysis across market caps)
NIFTY 500: For comprehensive screening including mid and small caps
This is the first practical step in how to do fundamental analysis of stocks systematically.
Step 3: Select Sector Choose industries where you have knowledge or interest:
Banking/Financial: For financial sector analysis
IT: For technology companies
Pharma: For healthcare stocks
FMCG: For consumer goods
Auto: For automobile companies
Sector focus is important when learning how to do fundamental analysis because metrics vary by industry.
Step 4: Select Financial Year Choose the most recent financial year for current data. Understanding how to do fundamental analysis means working with the latest available information.
Step 5: Apply Filters - How to Do Fundamental Analysis Practically
This is where you apply the ratios and metrics you learned. Here's how to do fundamental analysis of stocks using filters:
For Value Investing (How to Do Fundamental Analysis to Find Undervalued Stocks):
Valuation Filters:
P/E Ratio: 5-15 (looking for undervalued stocks)
P/B Ratio: < 2 (trading reasonably to book value)
Dividend Yield: > 3% (income generation)
Quality Filters:
ROE: > 15% (profitable business)
Net Margin: > 10% (healthy profitability)
Debt-to-Equity: < 0.5 (low debt)
Stability Filters:
Current Ratio: > 1.5 (good liquidity)
Interest Coverage: > 3 (can service debt comfortably)
This approach shows how to do fundamental analysis for value investing.
For Growth Investing (How to Do Fundamental Analysis to Find Growth Stocks):
Growth Filters:
Revenue Growth: > 20% (strong expansion)
Earnings Growth: > 25% (profit acceleration)
Sales Growth: Consistent over 3 years
Quality Filters:
ROE: > 20% (highly efficient)
Operating Margin: > 15% (strong operations)
Reasonable Valuation:
P/E Ratio: 15-30 (willing to pay for growth)
P/S Ratio: < 5
This demonstrates how to do fundamental analysis for growth investing.
For Quality Investing (How to Do Fundamental Analysis to Find Quality Companies):
Profitability Filters:
ROE: > 20% consistently over 5 years
Net Margin: > 15% (excellent profitability)
ROCE: > 20% (efficient capital use)
Financial Health:
Debt-to-Equity: < 0.3 (very low debt)
Current Ratio: > 2 (strong liquidity)
Interest Coverage: > 5 (excellent debt servicing)
Stability:
Consistent earnings growth
Stable profit margins
Positive operating cash flow
This shows how to do fundamental analysis focusing on business quality.
For Dividend Investing (How to Do Fundamental Analysis to Find Income Stocks):
Income Filters:
Dividend Yield: > 4% (high income)
Payout Ratio: 30-60% (sustainable)
Dividend History: 10+ years consistent payments
Stability Filters:
ROE: > 15% (profitable enough to pay dividends)
Debt-to-Equity: < 0.5 (safe balance sheet)
Positive Free Cash Flow (can afford dividends)
This illustrates how to do fundamental analysis for dividend income.
Step 6: Run the Query Click "Run Query" to execute your screen. Dhanarthi instantly applies all your filters, showing you exactly how to do fundamental analysis of stocks efficiently by screening thousands of companies in seconds.
Step 7: Analyze Results - How to Do Fundamental Analysis of Screened Stocks
Once you have results, here's how to do fundamental analysis of the shortlisted stocks:
Review the List: Scan through all qualifying stocks
Sort by Metrics: Click column headers to sort by different ratios
Compare Companies: Look at how companies stack up against each other
Check Consistency: Verify strong fundamentals are consistent, not one-time
Create Shortlist: Select 5-10 companies for deeper analysis
Read More: Click on companies to see detailed profiles
Further Research: Read annual reports, recent news, earnings calls for your shortlist
This systematic approach is how to do fundamental analysis of stocks thoroughly.
Using the Ratio Screener - How to Do Fundamental Analysis with Custom Weighting
Step 1: Open Ratio Screener Access this tool to learn how to do fundamental analysis with customized importance weighting.
Step 2: Select Index and Sector Choose your screening universe as before.
Step 3: Choose Ratios and Assign Weights
Here's how to do fundamental analysis by prioritizing what matters most to you:
Conservative Approach (Total 100%):
Debt-to-Equity: 25% (safety priority)
Current Ratio: 20% (liquidity importance)
Dividend Yield: 20% (income focus)
ROE: 20% (profitability)
P/E Ratio: 15% (reasonable valuation)
Aggressive Growth Approach (Total 100%):
Revenue Growth: 35% (expansion priority)
EPS Growth: 30% (earnings acceleration)
ROE Improvement: 20% (efficiency gains)
Profit Margin: 15% (profitability)
Balanced Approach (Total 100%):
ROE: 25% (profitability)
Revenue Growth: 20% (expansion)
P/E Ratio: 20% (valuation)
Debt-to-Equity: 20% (financial health)
Dividend Yield: 15% (income)
This shows how to do fundamental analysis of stocks with personalized priorities.
Step 4: Run Query The Ratio Screener ranks all stocks based on your weighted criteria, showing you exactly how to do fundamental analysis with your preferred methodology.
Using the Dhanarthi Scanner - How to Do Fundamental Analysis for Valuation
Step 1: Open Scanner Access this tool to learn how to do fundamental analysis focusing on valuation.
Step 2: Select Universe Choose indices and sectors to screen.
Step 3: Set Valuation Parameters
The Scanner shows you how to do fundamental analysis by categorizing stocks as:
Undervalued: Potential buying opportunities
Neutral: Fairly valued
Overvalued: Potentially expensive
Highly Overvalued: Bubble territory
Step 4: Add Conditions
Here's how to do fundamental analysis using the Scanner with specific criteria:
Finding Undervalued Quality Stocks:
P/E Ratio: < 15
P/B Ratio: < 2
ROE: > 15%
Debt-to-Equity: < 0.5
Revenue Growth: > 10%
This combination shows how to do fundamental analysis to find undervalued quality companies.
Finding Undervalued Growth Stocks:
P/E Ratio: 10-20
Revenue Growth: > 25%
Earnings Growth: > 30%
ROE: > 18%
Operating Margin: Improving
This demonstrates how to do fundamental analysis for growth at reasonable prices.
Step 5: Run Query Execute the scan to find stocks meeting your valuation criteria, learning how to do fundamental analysis for value discovery.
Step 6: Analyze Undervalued Stocks
For stocks identified as undervalued, here's how to do fundamental analysis to confirm opportunity:
Verify the valuation is justified (not a value trap)
Check if fundamentals are deteriorating or stable
Understand why the market hasn't recognized the value
Assess catalysts that might unlock value
Evaluate risks that might justify low valuation
This is how to do fundamental analysis of potentially undervalued stocks properly.
Practical Examples: How to Do Fundamental Analysis
Let's see practical examples of how to do fundamental analysis of stocks:
Example 1: How to Do Fundamental Analysis of a Banking Stock
Step 1: Business Understanding
Banks lend money and earn interest income
Revenue from interest spread and fees
Regulated industry with specific requirements
Step 2: Key Metrics for Banking (How to Do Fundamental Analysis of Banks):
Net Interest Margin (NIM): Interest earned - Interest paid
Gross NPA %: Bad loans as % of total loans
Capital Adequacy Ratio: Regulatory capital requirement
CASA Ratio: Low-cost deposits percentage
ROA: More relevant than ROE for banks
Step 3: Screen Using Dhanarthi Filters for Quality Banks:
ROA: > 1.5%
Gross NPA: < 3%
CASA Ratio: > 40%
Capital Adequacy: > 14%
P/B Ratio: 1-3
This shows how to do fundamental analysis of stocks in the banking sector.
Example 2: How to Do Fundamental Analysis of an IT Company
Step 1: Business Understanding
Provides technology services and solutions
Revenue from projects and contracts
People-intensive business
Step 2: Key Metrics for IT (How to Do Fundamental Analysis of Tech Stocks):
Operating Margin: Should be > 20%
Revenue Growth: Consistent > 15%
Employee Addition: Growing workforce
Client Concentration: Diversified is better
Dollar Revenue: Important as many clients are foreign
Step 3: Screen Using Dhanarthi Filters for Quality IT Companies:
Operating Margin: > 20%
Revenue Growth: > 15%
ROE: > 20%
Debt-to-Equity: < 0.2 (asset-light business)
P/E Ratio: 15-25
This demonstrates how to do fundamental analysis of IT sector stocks.
Example 3: How to Do Fundamental Analysis of a Pharma Stock
Step 1: Business Understanding
Manufactures and sells pharmaceutical products
Revenue from domestic and export markets
R&D intensive with patent considerations
Step 2: Key Metrics for Pharma (How to Do Fundamental Analysis of Pharma Stocks):
R&D Spending: Investment in future products
Product Pipeline: New drugs under development
Export Revenue: International presence
Patent Portfolio: Intellectual property strength
Regulatory Approvals: USFDA, WHO certifications
Step 3: Screen Using Dhanarthi Filters for Quality Pharma Companies:
ROE: > 18%
Operating Margin: > 15%
Revenue Growth: > 12%
Debt-to-Equity: < 0.5
Export Revenue: > 40% of total
This shows how to do fundamental analysis specific to pharmaceutical stocks.
Common Mistakes When Learning How to Do Fundamental Analysis
Avoid these errors when learning how to do fundamental analysis of stocks:
Mistake 1: Relying on Single Metrics
Wrong: Buying only because P/E is low Right: Combine multiple metrics when learning how to do fundamental analysis
Mistake 2: Ignoring Business Context
Wrong: Comparing metrics across unrelated industries Right: Understanding how to do fundamental analysis requires industry-specific knowledge
Mistake 3: Focusing Only on Past Performance
Wrong: Buying based solely on historical returns Right: How to do fundamental analysis includes evaluating future prospects
Mistake 4: Overlooking Debt Levels
Wrong: Ignoring high debt while focusing on growth Right: How to do fundamental analysis properly includes assessing financial safety
Mistake 5: Neglecting Cash Flow
Wrong: Trusting accounting profits without checking cash generation Right: Understanding how to do fundamental analysis means verifying cash flow
Mistake 6: Following Tips Blindly
Wrong: Buying without your own analysis Right: Knowing how to do fundamental analysis yourself builds true investment skill
Mistake 7: Analysis Paralysis
Wrong: Over-analyzing and never investing Right: How to do fundamental analysis efficiently means taking action after reasonable research
Best Practices: How to Do Fundamental Analysis Effectively
Follow these practices when learning how to do fundamental analysis of stocks:
1. Start with Quality Over Quantity
When learning how to do fundamental analysis, focus on understanding a few companies deeply rather than superficially screening hundreds.
2. Maintain a Consistent Process
Develop your personal method for how to do fundamental analysis and apply it consistently to every stock.
3. Track Your Analysis
Keep records of your fundamental analysis to learn what works. This improves your skills in how to do fundamental analysis over time.
4. Compare Within Sectors
Understanding how to do fundamental analysis effectively means comparing similar companies, not apples to oranges.
5. Consider Multiple Time Frames
When learning how to do fundamental analysis, examine 3-5 year trends, not just the latest quarter.
6. Verify Information
Part of knowing how to do fundamental analysis is cross-checking data from multiple sources.
7. Stay Updated
Learning how to do fundamental analysis is ongoing - keep studying and improving your methodology.
8. Use Screeners as Starting Points
Dhanarthi shows you how to do fundamental analysis efficiently, but always conduct additional research on shortlisted stocks.
9. Understand Limitations
Knowing how to do fundamental analysis includes understanding that it doesn't predict short-term price movements.
10. Practice Regularly
The best way to learn how to do fundamental analysis of stocks is through consistent practice and application.
How to Do Fundamental Analysis: Quick Reference Checklist
Use this checklist when learning how to do fundamental analysis of stocks:
Business Understanding
[ ] Understand what the company does
[ ] Know its revenue model
[ ] Identify its competitive position
[ ] Assess industry dynamics
Financial Statement Analysis
[ ] Review 5-year income statement trends
[ ] Examine balance sheet strength
[ ] Verify positive cash flow generation
[ ] Check working capital adequacy
Ratio Analysis
[ ] Calculate P/E, P/B, P/S ratios
[ ] Evaluate ROE, ROA, profit margins
[ ] Assess debt-to-equity ratio
[ ] Check current ratio and interest coverage
[ ] Analyze revenue and earnings growth
Competitive Analysis
[ ] Identify competitive advantages
[ ] Assess management quality
[ ] Evaluate market position
[ ] Consider threats and risks
Valuation
[ ] Compare ratios to industry peers
[ ] Compare to historical averages
[ ] Estimate intrinsic value
[ ] Determine margin of safety
Using Dhanarthi
[ ] Screen using appropriate filters
[ ] Shortlist promising candidates
[ ] Analyze detailed metrics
[ ] Conduct additional research
This checklist guides you on how to do fundamental analysis systematically.
Conclusion
Learning how to do fundamental analysis of stocks is one of the most valuable skills for investors. This comprehensive guide has shown you exactly how to do fundamental analysis step-by-step, from understanding businesses to calculating ratios to using Dhanarthi Stock Screener for efficient screening.
Understanding how to do fundamental analysis properly takes practice, but the rewards are substantial - better investment decisions, reduced risk, and long-term wealth creation. Dhanarthi Stock Screener makes learning how to do fundamental analysis of stocks much more accessible by automating the screening process while you focus on analysis and decision-making.
Remember, knowing how to do fundamental analysis is a journey, not a destination. Start with the basics outlined in this guide, practice regularly using Dhanarthi's powerful tools, and continuously refine your approach. With time and experience, you'll master how to do fundamental analysis of stocks and build the confidence needed for successful investing.
Start applying what you've learned about how to do fundamental analysis today with Dhanarthi Stock Screener and transform your investment approach.
FAQs
How long does it take to learn how to do fundamental analysis of stocks? Learning the basics of how to do fundamental analysis takes a few weeks, but mastering it requires months of practice. Dhanarthi accelerates the learning process by making the screening portion efficient.
Do I need an accounting background to learn how to do fundamental analysis? No, while helpful, you don't need accounting expertise to learn how to do fundamental analysis of stocks. This guide and Dhanarthi's user-friendly tools make it accessible to everyone.
How often should I do fundamental analysis of stocks? For long-term investing, knowing how to do fundamental analysis quarterly or annually for portfolio review is sufficient. For active investing, monthly screening helps identify new opportunities.
Can I learn how to do fundamental analysis using only free tools? Yes, Dhanarthi offers free access to essential features, allowing you to learn how to do fundamental analysis of stocks effectively without paid subscriptions.
Is learning how to do fundamental analysis enough for investment success? While crucial, knowing how to do fundamental analysis should be combined with risk management, portfolio diversification, and patience for optimal investment success.
How is learning how to do fundamental analysis different from technical analysis? Learning how to do fundamental analysis focuses on company value and business quality, while technical analysis studies price patterns. Both can be complementary.
Can beginners learn how to do fundamental analysis? Absolutely! This guide specifically teaches beginners how to do fundamental analysis of stocks step-by-step, starting with basics and progressing to advanced concepts.
Does Dhanarthi teach me how to do fundamental analysis? Yes, Dhanarthi's interface, templates, and tools are designed to teach you how to do fundamental analysis practically while you screen stocks, making learning hands-on and effective.
