What does 'fundamental analysis' entail?

Fundamental analysis involves evaluating securities based on their intrinsic value, which includes examining various financial aspects of a company such as earnings, sales, dividends, and growth potential. This approach seeks to determine whether a stock is undervalued or overvalued by comparing its current market price with its intrinsic value derived from the company’s fundamental characteristics.

Investors using fundamental analysis often look at financial statements, management quality, competitive position, market size, and economic factors. This allows them to make informed decisions about the future performance of a company's stock by focusing on its underlying business performance rather than just market sentiment or technical price movements.

In contrast, other options refer to different approaches or analysis methods. Analyzing market trends focuses more on the overall market dynamics rather than individual securities' inherent value. Calculating price trends using technical charts falls under technical analysis, which looks at price movements and trading volumes to forecast future price actions. Assessing the liquidity of assets pertains to understanding how easily assets can be bought or sold in the market without affecting their price, which is a different financial metric unrelated to intrinsic value analysis.