A securities analyst who subscribes to fundamental analysis would be expected to:

• A. Perform analysis primarily on stocks that reflect long-term macro trends across the economy
• B. Observe and study time series data of closing market prices over time to identify patterns that inform the likely direction of a securities stock price based on what is termed "technical data"
• C. Study company balance sheets and income statement data to provide buy/sell valuations and ideas for stock selection
• D. Analyze macroeconomic indicators to predict currency movements

Answer: (C)

Fundamental analysis centers on a company’s financial health and prospects, using its financial statements and other solid business factors to estimate intrinsic value and decide whether a stock is a good buy. By examining the balance sheet, income statement, and cash flow statement, you assess profitability, margins, debt levels, asset quality, and growth potential. This information feeds into valuations and stock ideas based on what the company can earn over time, not just how its price has moved or macro trends alone.

Observing price patterns over time to predict the next move is characteristic of technical analysis, which relies on price and volume data rather than the underlying business fundamentals. Analyzing macro indicators to forecast currency movements targets currencies rather than individual equities, which falls outside the typical scope of equity fundamental analysis. While macro context can influence a company’s prospects, the primary activity described here is evaluating a company’s financial statements to determine buy/sell valuations.