How to perform a stocks fundamental analysis in Australia

There are very few markets worldwide that offer as much opportunity and volatility as the Australian stock trading market.

Performing a stock’s fundamental analysis will allow you to take advantage of the great opportunities available in Australia whilst minimizing your losses by understanding precisely what you’re buying.

Time frame

The first step in performing a stock’s fundamental analysis is to choose an appropriate timeframe for your investment thesis. The time frame should be long enough to establish a trend but short enough to change direction quickly if need be. This means that weekly or monthly charts might not suit every company, depending on their business cycles and industry dynamics. It is also essential to consider any upcoming events affecting share prices, such as profit reports or dividends. You must consider many factors when performing a company’s fundamental analysis, depending on your chosen time frame.

Capital allocation

The next step is to determine how much of your capital you want to allocate to each investment, which can either be based on an allocation percentage or number of shares. Frequently, fund managers will use the latter approach by investing approximately 1% of their portfolios in more than 100 different companies. This means that they won’t miss out on great opportunities if one of their stocks doesn’t perform well while also minimizing risk if several companies’ share prices decline at once. Analyzing all of these companies can seem overwhelming, but it is necessary if you don’t want to overlook any hidden gems in the market.

Four main categories of fundamentals


The first factor that you should look at is a company’s profitability over the past few years. Suppose the company has been consistently increasing its revenue and operating earnings. In that case, this could signify that they have found a sustainable competitive advantage in the market, which they can use to gain more market share in the future.

You should also check how much it generated free cash flow in the most recent quarter. Ideally, you want to see that free cash flow is more significant than net income, which means they are generating more cash than they’re losing each year.


The next thing to look at is a valuation based on earnings per share (EPS), where you divide a company’s total market capitalization by their total amount of after-tax profits in the past year.

It would help to consider whether or not the company has any debt in its overall capital structure because this will affect how secure your investment is. A financial leverage ratio can help determine where you divide a company’s long-term debt by its equity.

You should also consider what sort of price-to-book ratios are available for the stocks that you’re interested in. A higher ratio is preferable where the stock represents more equity than debt.


Another thing to consider when performing a company’s fundamental analysis is how many different shareholders there are because this affects supply and demand dynamics. You can do this by looking at shareholder data such as ownership by management, directors and other insiders compared with large investment companies, which can give you an idea of who is buying and selling their shares.

Financial health

You need to check the last factor: what kind of financial health the company has before investing your money. You should look at whether or not they have enough current assets to cover their short-term liabilities, as well as what kind of quick ratio they’re sporting, which divides current assets by short-term liabilities. Having all of this information on a company should give you a better idea of whether or not they’re an excellent investment to include in your portfolio.

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