The best books on fundamental analysis teach investors how to identify the key factors that influence a business or industry’s ability to grow earnings and determine their impact on the company’s overall value. A book about fundamental analysis should demonstrate how the economy impacts certain industries and provide a general guideline for selecting businesses to invest in based on industry. It also needs to explain how the reader can employ qualitative analysis when researching the business plan and management of a potential investment. Finally, the book should contain lessons about financial statements and how to read them, so that readers understand how to determine a fair valuation of a company’s worth.
Books on fundamental analysis should show the effect the economy has on business and industry. Economic expansion indicates that consumer demand for goods and services is high and companies are growing, hiring, or investing in capital equipment to satisfy consumer needs; economic contraction results in lower revenue and possible layoffs. Quality books on fundamental analysis should also explain the inverse relationship between the stock prices of businesses and interest rates for government-issued bonds. Usually, higher interest rates cause stocks to sell at lower prices.
During an economic expansion, some businesses and groups are more likely than others to provide high returns. The best books on fundamental analysis will teach investors how to analyze the economy and determine which industries are most likely to prosper. Readers should be taught to examine the growth rate and size of an industry and how to discern its importance to the economy.
The best books on fundamental analysis teach the reader what qualitative traits to look for within an industry. Investors must know how to evaluate the future prospects of a company through business forecasts. They should be able to identify a company's key competitors, any competitive advantages, the markets the company serves, and whether or not the company can turn a profit. Investing books based on fundamental analysis should also teach readers how to assess the management of a company.
Understanding financial reports may be the most important aspects of fundamental analysis. The income statement shows how much the company generates in revenue and how much it keeps in profit. Balance sheets tell investors how much a company owes in debt and the worth of the assets it owns. A statement of cash flows explains how much actual cash a business earns. The best books on fundamental analysis should explain all three of these financial documents in great detail.
Fundamental analysis is critical to successful investing. Practitioners of this discipline have a better understanding of the current economy and the business health of the companies they invest in. Quality books on fundamental analysis should teach readers how to apply fundamental analysis thoroughly and correctly.