What are the three layers of fundamental analysis?

The three layers of fundamental analysis are – i) Economic analysis, ii) Industry analysis, iii) Company analysis

Economic analysis: Economic factors include GDP, monetary policy, inflation, import-export policy, foreign investment policy, geopolitical conditions, an effective government budget, and so on. Various aspects have diverse implications in our socioeconomic culture, which influences the company's business. For example, high inflation reduces customers' purchasing power, reducing consumer demand. This implies that the companies' sales volume would decline.

Industry Analysis: Another critical factor that an investor must carefully examine is industry analysis. Demand and supply of various goods, global and local markets, product life cycle, seasonality, the threat of new entrants, price-based or product-based competition, and so on are the major drivers of any sector.

Company analysis – In company analysis, investors' major objective is to find out whether it is undervalued or overvalued. There are two aspects to take into account: qualitative and quantitative. Investors analyse the financial statements, which include the books of accounting, under quantitative factors. They often analyse financial data and other metrics, such as ratio analysis and revenue-based valuation models, to assess the company's financial viability. Under qualitative elements, they examine the company's management, business models, goodwill, compliance with various regulations, shareholding patterns, and so on.