Baziloo Academy Level: Beginner ⏱ 4-minute read

Fundamental analysis: understanding a company’s true value

By The Baziloo Editorial Team ·Published on 18 July 2026 at 1.03 pm

Fundamental analysis is a method of assessing whether a company is truly worth the price at which it is trading on the stock market. It examines the company’s financial statements, profitability and growth prospects. It is an essential tool for investors who want to understand what they are buying.

🎯 What you’ll learn

Defining fundamental analysis and its main objective
Identify the three key areas to examine: financial statements, profitability and growth
Understanding the difference between a share’s price and its intrinsic value
Recognising the limitations and risks of this approach

What is fundamental analysis?

Fundamental analysis is a method for assessing whether a publicly listed company (i.e. one whose shares are traded on the open market) is truly worth its current price. It is based on a simple idea: the price of a share is not always equal to the company’s true value.

Imagine you wanted to buy a restaurant. You wouldn’t pay the same price if it made a profit o100 000 €s a year as you would if it was making a loss. Fundamental analysis works in the same way: it examines the company’s ‘financial statements’ (its revenue, expenditure and profits) to determine whether it is worth its current price.

The aim? To find sound companies at an attractive price, or, conversely, to identify those that are overvalued (too expensive relative to their true worth).

The three pillars to be examined

1. Financial accounts. You look at the company’s official financial statements: how much it earns (turnover), how much it spends, and how much profit it makes. For example, if a company earns 1 000 000 € a year but spends 900 000 €, it makes 100 000 € in profit.

2. Profitability. This refers to a company’s ability to turn its money into profit. A company that earns a lot but spends almost as much is not very profitable. Ratios (simple calculations) are used to measure this. For example, if a company is worth 1 000 000 € and earns 100 000 € a year, its return is 10 %.

3. Growth prospects. Will it be bigger and more profitable in the future? We look at its plans, its sector and the competition. A rapidly growing company may justify a higher price.

List price vs actual value: a practical example

Let’s suppose a technology company is listed on the stock exchange at100 € per share. Fundamental analysis allows you to calculate its ‘true value’: let’s say80 €. Conclusion? The share is overvalued (too expensive). Conversely, if the true value is120 €, it is undervalued (a potential bargain).

This difference exists because share prices on the stock market are also influenced by investor sentiment, rumours and trends. Fundamental analysis helps you to remain rational by basing your decisions on actual figures.

Limitations and risks to be aware of

Fundamental analysis is not a crystal ball. Even if a company’s financial results are excellent today, everything can change: an economic crisis, a new competitor, a poor decision by management. Past figures are never a guarantee of the future.

Furthermore, this analysis requires time and expertise. You need to be able to read financial statements, understand ratios and have knowledge of the sector. For beginners, it’s a learning process. Finally, two analysts may interpret the same data differently and reach opposing conclusions.

📖 Definitions

Fundamental analysis: A method of assessing a company’s true value by examining its financial statements, profitability and growth prospects.
Turnover: The total amount of money a business earns from selling its products or services, before deducting expenses.
Profit: The money left over for the company after it has paid all its expenses. Profit = Turnover − Expenses.
Ratio: A simple calculation that compares two figures to provide a better understanding of a company’s financial health. For example, the profitability ratio compares profit to capital employed.
Overvalued: Used to describe a share whose market price is higher than its estimated intrinsic value.

💡 A practical example

A small clothing company generates 500 000 € per year (turnover), spends 400 000 € and therefore makes 100 000 € in profit. According to analysts, it is worth 1 000 000 €. Its shares are listed at 50 €. By buying 10 shares, you are investing 500 € for a stake in a company that generates 100 000 € per year. Fundamental analysis helps you to assess whether this is a good deal.

⚠️ Risks you need to be aware of

Past performance is no guarantee of future results; a company can change rapidly.
Fundamental analysis requires time, skill and experience to use effectively.
Two analysts may interpret the same data differently and reach opposing conclusions.
Unforeseeable events (crises, scandals, regulatory changes) can render a sound analysis invalid.
This method alone is not sufficient; it must be combined with other approaches when making an investment decision.

✅ Key points to remember

Fundamental analysis assesses a company’s true value by examining its financial statements, profitability and growth.
The price of a share on the stock market does not always reflect its true value: it may be overvalued or undervalued.
This method is based on hard data and helps you to remain rational in the face of market volatility.
It has its limitations: it takes time and expertise, and never predicts the future with certainty.
Fundamental analysis is a tool, not a guarantee; it must be supplemented by other knowledge.

🧠 Test your knowledge

1. A company earns 200 000 € per year and spends 150 000 €. What is its annual profit?

2. What is an overvalued share?

Fancy taking it a step further?

Analysise this security in detail on Baziloo — B-Score, risk metrics, price history — and track it in your portfolio.

📊 Explore the values on Baziloo → Ideas to explore All articles

Sources

AMF — Investor Zone (Autorité des marchés financiers) — amf-france.org