What Is Fundamental Analysis? A Complete Guide for Iran's Stock Market
Fundai Education Team · · 12 min read
A step-by-step guide to fundamental analysis of stocks on the Tehran Stock Exchange, using Codal, financial ratios and Fundai's tools.
Fundamental analysis is a systematic method for evaluating a company's financial and operating position based on official documents and data. In this approach, financial statements, monthly activity reports and trading statistics are reviewed to reveal the issuer's business position. At Fundai, by collecting data from the Codal system, the Tehran Stock Exchange Technology Management Company website (TSETMC) and the Iran Mercantile Exchange, we have made it possible to compare more than 600 listed companies on the exchange and IFB against industry and market averages. For an initial scan of the variables, the Market View and Filters tools are available to you.
What Is Fundamental Analysis and How Is a Stock's Intrinsic Value Measured?
Fundamental analysis, known in financial literature as fundamental analysis (تحلیل فاندامنتال), is the process of examining a company's financial and operational structure based on the documents published on Codal. Within this framework, the investor examines factors such as the company's revenue mix, cost of goods sold, profitability and liquidity position in order to assess its business standing free from emotional market swings.
A stock's intrinsic value is an analytical estimate calculated using historical financial statements, macro variables and valuation models. This estimate may differ from the stock's current price on the board, because the price on the exchange board reflects the momentary supply and demand of traders. Fundamental analysis defines how to read the metrics, and the final decision rests with the individual investor.
The official documents used in this method are drawn from the Codal system, price statistics from the Tehran Stock Exchange Technology Management Company website (TSETMC), and physical trades from the Iran Mercantile Exchange. At Fundai, we organize this information and make it comparable so that analysts can examine different periods.
What are the differences between fundamental analysis and technical analysis?
The main difference between the two approaches lies in their input variables and the purpose of the analysis. Fundamental analysis focuses on the financial statements published on Codal, sales revenue and the balance sheet structure, and evaluates the issuer's business performance. By contrast, technical analysis relies on the price chart, trading volume and market behavior to trace patterns of supply and demand.
Neither method is inherently superior to the other, and each reflects a different aspect of stock market information. The fundamental investor examines profitability and the balance sheet, while the technical trader focuses on timing entries and exits based on price fluctuations.
Some market participants use the term "fundamental stocks" to describe companies with a stable balance sheet and a record of regular profitability. This label is not an approved or guaranteed category on the Tehran Stock Exchange; therefore, examining the items in the financial statements always takes priority over relying on common labels.
To understand an issuer's position accurately, it is essential to review its performance alongside the average of its peer group. At Fundai, we have organized companies' official data so that the assessment of issuers' business condition can be carried out without prejudgment.
What are the step-by-step stages of fundamental analysis of stocks on the Iranian stock market?
Fundamental analysis of stocks on the Iranian stock market is a step-by-step process that starts with macro variables and moves on to examining financial statements and ratios. This method of analysis is carried out in four consecutive steps.
Monitoring macroeconomic conditions and influential variables The first step of fundamental analysis concerns broad variables such as inflation, currency policies, interest rates and budget provisions. The source of this information is the reports of official bodies and enacted laws. The main question is what effect monetary and currency variables have on the company's cost of goods sold, financing costs and its rial or export selling prices. At this stage, the ratio of export revenue to domestic revenue is determined in order to gauge the sensitivity of operations. For example, when examining the symbol FOLAD, which belongs to Mobarakeh Steel Company of Isfahan, the analyst considers changes in global steel prices and currency variables for the fiscal year ending 29/12/1404 and records their effect on the company's operating revenue of 366,886.0 billion tomans. The basis of the work is comparing the trend of macro indicators with similar historical periods. The output of this step is a note on the variables governing the value chain and the issuer's currency sensitivities.
Analyzing the industry structure and the company's value chain The second step is devoted to understanding the issuer's position in the industry and assessing its competitive advantages. Management's interpretive reports on the Codal system and the company information page on Fundai are the main sources for this stage. The key question is from what sources the company procures raw materials, how access to energy carriers such as gas and electricity is across different seasons, and what the company's market share is. On Fundai, by going to the FOLAD symbol page and the ratios section, the company's position is examined alongside the basic metals industry average. The subject of the assessment includes how iron ore and concentrate are procured, transportation costs and the approved prices of inputs. The basis of measurement is comparing the company's efficiency and profit margin with its peers. The output of this stage is an understanding of the issuer's competitive position in the industry chain and its resilience against fluctuations in input prices.
Reviewing the monthly activity report and Commodity Exchange transactions In the third step, the issuer's short-term operations are examined by tracking production volumes, sales tonnage and prices. The data source is the monthly activity report on the Codal system and the trading on the physical floor of the Iran Mercantile Exchange. The question at this step is whether sales volume and prices have been stable in recent months. The reader's action in this section is to go to the monthly report and Commodity Exchange transactions section on the FOLAD symbol page on Fundai so that sales amounts and prices are recorded. This article does not cite periodic data from the monthly report, but to carry out this step on Fundai it is enough to open the symbol's monthly activity report and monitor revenue developments before the quarterly statements are published. The basis of comparison is measuring the performance of the selected month against previous months and the corresponding period of the previous year. The output of this step is an organized table of sales volumes and amounts for identifying the short-term direction of operations.
Evaluating the main financial statements and calculating ratios The fourth step is devoted to the balance sheet, the income statement and the cash flow statement published on Codal. The main question is how much of revenue has been converted into operating and net profit, and how liquidity and debts have been managed. Relying on the financial statements for the fiscal year ending 29/12/1404, the investor in the FOLAD symbol records operating revenue of 366,886.0 billion tomans and net profit of 100,300.1 billion tomans, and then, in the ratios section of Fundai, examines a trailing twelve-month P/E of 6.7, return on equity of 28.4 percent and a debt-to-assets ratio of 0.5. The basis of measurement is comparing these variables with the company's historical record and the basic metals industry average. The output of this section is a list of profit margins, leverage position and net working capital.
How are the core financial statements read in fundamental analysis?
The core financial statements are the main references for measuring a company's profitability, cash flow and asset structure. These reports are published periodically on the Codal system and cover interim and annual performance. At Fundai, we line up the financial statements of different periods side by side so that trends can be reviewed faster.
The balance sheet shows the position of assets, liabilities and owners' equity at the end of each period. The result of subtracting current liabilities from current assets is called "net working capital", which is an indicator of a company's short-term liquidity. For example, based on the balance sheet for the fiscal year ending 29/12/1404 for the symbol FOULAD, total current assets were 344,848.4 billion tomans and total current liabilities were 193,682.5 billion tomans, which indicates net working capital of 151,165.9 billion tomans. A more precise understanding of this measure depends on the quality of receivables and the maturity of obligations.
The income statement shows how much net profit operating revenues generated after deducting cost of goods sold and expenses. According to the fiscal year 1404 financial statements of Foulad, operating revenue was 366,886.0 billion tomans and gross profit was 106,905.1 billion tomans. The cash flow statement also reports the inflow and outflow of cash in three categories: operating, investing and financing; in the same year, Foulad had net cash flow from operating activities of 87,003.2 billion tomans.
For details on these line items and a breakdown of each entry, read the guide Reading Financial Statements in Fundamental Analysis: A Step-by-Step Guide to the Income Statement, Balance Sheet and Cash Flow. At Fundai, we have organized the headings so that comparing companies' multi-year trends is simple.
What Are the Most Important Financial Ratios in Fundamental Stock Analysis?
Financial ratios measure the items in the financial statements against market price and the size of assets. These ratios are divided into three categories (valuation, profitability and leverage) to make financial health and operating returns clear.
Valuation ratios compare the price level against performance variables. The trailing twelve-month price-to-earnings ratio (P/E) is obtained by dividing the current price of each share by the profit of the past twelve months. The trailing twelve-month price-to-sales ratio (P/S) and the price-to-book value ratio (P/B) likewise show the relationship between the board price and operating revenue and shareholders' equity.
Profitability ratios reveal the returns on business operations. Gross profit margin and net profit margin measure the percentage of profit derived from each portion of sales revenue. The return on equity ratio (ROE) measures the profitability generated per unit of shareholders' contribution, and return on assets (ROA) indicates how efficiently management uses the company's total resources.
Leverage and activity ratios also show how debts and capital turnover are managed. The debt-to-assets ratio reflects the share of liabilities in total assets, and the debt-to-equity ratio indicates the degree of reliance on external financing. The receivables collection period and the inventory turnover period also show how quickly cash is recovered. In the Filters section of Fundai, you can examine these ratios for different companies.
What Is the Role of the Monthly Activity Report and the Commodity Exchange in Fundamental Analysis?
The monthly activity report and Commodity Exchange statistics reveal a company's operational information over short intervals between the releases of quarterly financial statements. These reports are a suitable tool for timely monitoring of market developments and commodity demand.
Under the rules of the Codal system, manufacturing companies publish their monthly activity report, which covers production volume, sales quantity and rial amounts. The release timing of each company's report must be checked in that company's actual announcements on Codal; monitoring these reports shows fluctuations in selling prices and the volume of demand.
For issuers in the metals and mining industries, trading on the Iran Mercantile Exchange provides transparent information on the level of competition among buyers and the discovered prices. At Fundai, we record Commodity Exchange trading data on the company page when it is published, so that investors can view changes in traded prices alongside the figures in the financial statements.
How do you compare a stock with the industry and market averages?
Examining financial variables in isolation, without measuring the industry average, can lead to a misleading reading. Figures such as profit margin or the price-to-earnings ratio only take on precise meaning when they are weighed alongside the performance of the whole industry and the market.
At Fundai, we place each company's financial ratios next to the industry and market averages. The table below shows this comparison for two symbols from two different industries, based on data recorded on 05/07/1405.
| Symbol or benchmark | Trailing 12-month P/E | Trailing 12-month P/S | P/B | Return on equity (ROE) | Net profit margin | Debt-to-assets ratio |
|---|---|---|---|---|---|---|
| KOROMIT | 20.7 | 10.3 | 3.3 | 15.9% | 49.8% | 0.2 |
| Metal ore mining industry | 10.2 | 2.2 | 3.6 | 34.9% | 21.9% | 0.6 |
| Market corresponding to Koromit | 9.8 | 1.5 | 4.5 | 45.8% | 15.6% | 0.9 |
| FOULAD | 6.7 | 1.7 | 1.9 | 28.4% | 26.0% | 0.5 |
| Basic metals industry | 13.1 | 3.3 | 4.9 | 37.8% | 25.2% | 0.5 |
| Market corresponding to Foulad | 8.2 | 1.8 | 3.1 | 38.3% | 21.4% | 0.8 |
To view the financial history of these two companies, the symbol pages for Mobarakeh Steel Company of Isfahan and Kavandegan Bana Chromite Mines Development are available to you on Fundai. Reviewing these pages makes the profit margin trends and the cash dividend history clear.
How do we implement fundamental analysis with Fundai's tools?
Fundai's tools make it possible to screen and systematically review more than 600 companies listed on the Tehran Stock Exchange and Iran Fara Bourse. Instead of searching documents manually, investors filter companies by the financial criteria they care about.
In the Filters section, conditions can be defined on the price-to-earnings ratio, monthly sales figures, and profit margin. For example, you can define a filter that shows companies whose trailing twelve-month P/E is below the industry average and whose net profit margin is above 20.0 percent, so that the matching companies are listed in a single table. Running several conditions at the same time is available in the Multiple Filters package, and the free account runs one condition.
Screening with fundamental filters In the Filters section, set your desired conditions on financial ratios, operating revenues, or monthly sales so that the matching symbols are extracted.
Reviewing trading flows in the market view By going to the market view, assess the state of the indices, the inflow and outflow of real-investor money, and the movement of liquidity between industries on the latest trading day.
Adding symbols to the watchlist Save your selected companies in your account's watchlist so that you have continuous access to changes in their ratios and their financial reports.
Reviewing financial documents on the Codal system and periodically monitoring ratios is a structured approach to evaluating businesses on the Iranian stock market. By using Fundai's analytical filters, companies' financial variables are monitored with greater accuracy and speed.
How does fundamental analysis differ from technical analysis?
Fundamental analysis examines a company's financial documents, sales, and balance sheet to understand the quality of its operations, whereas technical analysis reads the price chart and trading volume to gauge the behavior of traders.
What are the four main steps of fundamental analysis of stocks on the Iranian stock market?
These four steps comprise reviewing the macroeconomy, analyzing the industry structure, monitoring the monthly activity report and the commodity exchange, and finally evaluating the basic financial statements and ratios.
How is net working capital calculated in the balance sheet?
Net working capital is obtained by subtracting current liabilities from current assets, and it reflects the issuer's short-term financial position.
Is the monthly activity report published on Codal before the quarterly financial statements?
The timing and sequence of publishing the monthly activity report and the financial statements are not the same for all companies, and the dates of the announcements should be checked on that company's page on the Codal system.
What use do Fundai's filters have in fundamental analysis?
The filters make it possible to search across financial ratios, operating revenues, monthly sales, and the commodity exchange. Applying several conditions at the same time is possible in the Multiple Filters package, and the free account runs one condition.
#Iran Stock Market #Fundamental Analysis #Financial Statements #Financial Ratios #Codal