How to analyze stock?

  What we do when we say that we are doing  fundamental analysis   of stocks We actually study the underlying business of that stock. To understand the need of fundamental analysis of business, let’s take a small example. Suppose you want to eat a chocolate, what you will do? You will go to the market and take a bite of KitKat or have a Munch. This is easy, and this is the way everybody buy chocolates in this world. But suppose you want to buy the company itself which manufacturers KitKat and Munch. What you will do now? For sure, buying Nestle (the company) will not be as simple as buying its end products (kitKat). Why? Because capital required to buy a company is very large. But apart from the capital limitation, as an investor we must also be careful buying in buying Companies. Why? The reason is simple, we should limit ourselves to buying stocks of fundamently strong    compnies. This is what  fundamental analysis  does for its investors. It helps people to identify good business  

  Profit and loss account is also known as income statement. It is a document which is prepared by the company to report its income, expense, and profit happened in last 12 months.  P&L account talks about few important things about the business. First of all it talks about how much  income  the company has generated in last FY (12 months). In India the financial year of a business generally starts from first of April and ends on 31st of March. So when P&L account is prepared it is prepared for a period between 1st of April and 31st of March.   The next important thing that profit and loss accounts states is various  expenses  that the company has incurred in the last FY.  Once the income and expense line items are listed by the company, the next important deduction that is made is called the  gross profit . By adjusting depreciation, interest expense, and tax expense,  net profit (PAT)  of the company is deduced in the P&L account.  Statement of Profit and Loss Account Thi

  Profit and loss accounts give the status of profitability for a year. The cash flow report gives the status of cash flows for a year. But the balance sheet report tells the status of assets, liabilities, equity from the day a company is formed. Talking about the balance sheet in more colloquial terms, we can say that it tells  how a company has handled its finances . Better utilization of finances ultimately leads to more profitability and cash flows. So we can say that for a company it all starts with its balance sheet. Let’s know more about it. Simplified Balance Sheet The above image is a graphical representation of a balance sheet. What a balance sheet  balance ? It is balancing  Assets  on one side and  equity plus liabilities  on the other. That’s the most basic understanding of a balance sheet report that we must remember. It gives us our  Balance Sheet Formula .  From a general perspective, this is what a balance sheet reports tells us about the company. Liability Side Source