I’m new into stock investment and still learning. One of must known term is fundamental analysis. Do you want to know about this term?
Fundamental analysis is the cornerstone of investing. It is all about using concrete information about a company’s business to try to find the real value of a stock.
They call if fundamental analysis for your ability to make money in the stock market.
Before analyze public companies for their investment potential, you’ll need to understand some business basics, particularly those relating to the company’s financial statements.
Also known as quantitative analysis, this involves looking at revenue, expenses, assets, liabilities and all the other financial aspects of a company.
Fundamental analysts look at this information to gain insight on a company’s future performance.
In fundamental analysis there 3 part to be analyst :-
A ) 3 M Formula
– Management : Look at who is Director, CEO and the Main Shareholder. Make sure they are qualified and experience managing company.
– Model Business: You must look their business. Unique model business will make sure they could success. If they monopolize the industry, it is better for us to invest.
– Market Price : Look whether the company is undervalue or not.
B) Analyst their Financial Performance of the Company.
– Profit and Loss : Make sure the company make profit and not loss.
– Income Statement : Make sure the company get higher income.
– Balance Sheet : Company that have more asset than liability is good to invest.
– Cash Flow : Make sure the company have a positive cash flow.
C) Magic Number
– Earning Per Share (EPS) : Make sure the company have positive EPS.
– Returns on Equity (ROE) : Return on Equity to shareholder must higher.
– Net Asset Value (NAV) : Value of their asset must more than stock value.
– Price Earning Ratio (P/E Ratio) : Low value is better to invest in this stock.
– Dividend Yield : Company could give dividend to their shareholder. The high value means the company is good.
Analyze Like a Pro
One of the big ideas behind fundamental analysis is that you’re buying the stock to get the financial benefits of owning a prosperous company.
Fundamental analysts strive to find companies whouse intrinsic value is greater than or will be greater than its market value.
Do the benchmarking as it is essentially the process of observing standards against which you can measure the stock you’re analyzing. Unfortunately, there are no hard and fast rules for fundamental analysis which is why even the professionals get things wrong every once in a while.
The best way to strengthen your fundamental analysis skills is through practice. How? Benchmark stocks, develop opionions about them and analyze the results.
There are a valuable activites to hone your fundamentals skilss :-
1. Track two stocks for three months.
2. Create a fundamental checklist.
3. Build your benchmarks.