Which statement best describes fundamental analysis?

• A. It evaluates company data for investment selection (active management).
• B. It relies only on price history.
• C. It ignores earnings and assets.
• D. It uses only macro indicators.

Answer: (A)

Fundamental analysis looks at a company’s actual business fundamentals—its earnings, assets, cash flow, debt, competitive position, and management—to judge its value and investment potential. The statement that best describes this approach is that it evaluates company data for investment selection, which aligns with using the company’s financial and operating information to guide decisions, a hallmark of active management where you pick stocks based on intrinsic value rather than following market trends.

Why the other ideas don’t fit: relying only on price history is a sign of technical analysis, which focuses on charts and patterns rather than the company’s fundamentals. Ignoring earnings and assets would miss the core drivers fundamental analysis relies on. Using only macro indicators centers on broad economic factors rather than the specifics of a single company, which fundamental analysis considers but does not limit itself to.