Question

Which type of analysis focuses on evaluating a company's financial statements ?

• A. Technical Analysis
• B. Fundamental Analysis
• C. Sentiment Analysis
• D. Quantitative Analysis

Hint:

Associate "fundamental" with the underlying financial health and value of a company, which is derived from its financial statements.

Answer 1

The Correct Option is B

Step 1: Understand the objective - identifying the analysis focused on financial statements.
The question asks which type of analysis specifically involves the evaluation of a company's financial reports. Step 2: Define each type of analysis listed.
(1) Technical Analysis: This involves studying historical price and volume data of securities to identify patterns and predict future price movements. It relies on charts and indicators rather than a direct examination of a company's financials.
(2) Fundamental Analysis: This method assesses a company's intrinsic value by examining its financial health (through financial statements), management, industry position, and macroeconomic factors. The goal is to determine if the company's stock is undervalued or overvalued.
(3) Sentiment Analysis: This involves analyzing the overall opinion or emotion towards a company or stock, often by examining news, social media, and other textual data. It focuses on market psychology rather than financial statements. (4) Quantitative Analysis: This is a broad category that involves using mathematical and statistical models to analyze various types of data, including financial data. While fundamental analysis can employ quantitative techniques, its core focus is on the qualitative and quantitative aspects derived from financial statements and the broader economic context.
Step 3: Match the analysis type with the focus on financial statements.
Fundamental analysis is the method that directly involves a detailed evaluation of a company's financial statements to assess its financial health and intrinsic value. Step 4: Select the correct option.
Based on the definitions, Fundamental Analysis (option 2) is the type of analysis that focuses on evaluating a company's financial statements.