When it comes to fundamental analysis of stocks, you should begin with the nature of company, the product or service it offers, the existing market or opportunities for the growth of the company, its current financials, and the overall market sentiment associated with the company.
Fundamental Analysis (FA) is a comprehensive study of a business. When an investor wants to invest in a business for the long term (3-5 years), it is important to understand the business from various perspectives. Fundamental analysis examines economic, financial, qualitative and quantitative factors associated with a stock. It also studies the economic data, performance of its peers, company’s financial statements etc.
Interpreting financial statements
Interpreting financial statements is critical to understand the financial health of a company. The three major financial statements are the Profit & Loss Account (P&L), Balance Sheet and Cash Flow statement.
P&L Account
P&L account reflects the operating performance of the company in a given year. The operating performance shows the company’s income, expense, and hence its profitability can be derived from this statement. P&L accounts are mandatory for every company and are released every quarter.
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