The fundamentals of fundamental analysis...

For many analysts (not all), fundamental analysis is just limited to the financial numbers and the inferences derived from historical (financial) data.

However many Management Gurus think otherwise; and many have gone on record to the extent of saying that judging the future performance of an organization by looking at historical financial performance is like driving a car by looking at the rear view mirror. This statement has merit, even though all the conclusions from financial analysis should not be entirely written off.

Some comments on circumstances where the numbers cannot tell a story:

• Sudden change in management structure & philosophy.
• External economic conditions and major events.
  
• Technology disruptions.
• Unexpected competition.
• Change in government regulations.
• ...
  

The list may not be comprehensive, but is sufficient to illustrate that a subjective analysis of an organization is an equally good mechanism. The real difficulty lies in modeling such scenarios to determine the value of the stock...