Why fundamentals matter

Charts tell you what a price did. Fundamentals tell you what a business is — and whether its price makes sense. Valuation is the discipline of estimating what a company is worth, so you can compare that figure to the price the market is asking.

Price is not value

A share price is just the last number two strangers agreed on. Value is your own estimate of what the underlying business will earn and return to owners over time. When price sits well below your estimate of value, you have a candidate to buy; when it sits well above, you have a candidate to avoid or sell.

Where the numbers come from

Public companies publish financial statements every quarter and year. There are three of them:

• The balance sheet (in Brazil, balanço patrimonial) — a snapshot of what the company owns and owes.
• The income statement (demonstração do resultado do exercício, DRE) — how much it earned over a period.
• The cash-flow statement (demonstração dos fluxos de caixa, DFC) — the actual cash that moved in and out.

This chapter teaches you to read all three and, crucially, to see how they link together. Everything later in the track — ratios, DCF, multiples — is built from these numbers, so reading them correctly is the foundation.