How to Select Stocks with Fundamental Analysis

Fundamental Analysis

Investing in the capital market, especially in stocks, is an investment option that provides relatively large returns. The benefits of investing in stocks are in the form of capital gains and dividends.

Capital gain is the profit obtained when the sale of capital assets (investment) has a higher selling price than the purchase price. Meanwhile, dividends are the distribution of company profits to shareholders based on the number of shares owned.

However, in-stock investing, a person can also experience a risk of loss which is called a capital loss. Therefore, in investing in stocks, especially for beginners, it is necessary to first understand this risk and need to know two ways to analyze a stock, namely fundamental analysis, and technical analysis.

Fundamental analysis generally emphasizes the analysis of a company's performance. We analyze things that can move stock prices such as macro policies, micro policies, financial reports, industry potential, and the level of business competition, and the company's future business model. 

In fundamental analysis, there is a top-down analysis approach. The top-down analysis looks at the "big picture" in advance of the companies whose shares we will bell. Through this approach, an investor can find out whether the condition of a company is generally good, and whether all components of the company can be considered good or vice versa. 

Therefore, let's look at four things in the top-down analysis approach in conducting fundamental analysis which is summarized in the following review:

1. Macroeconomic Analysis

The macroeconomic analysis includes an analysis of current economic conditions in the general world and their impact in the future.

It is important to note in this macroeconomic analysis whether economic conditions are growing or are declining. This is important because the economic conditions of a growing country are usually in line with a bullish or increasing stock market.

2. Industry Sector Analysis

This is an analysis of which industrial sectors have the opportunity to grow in certain economic conditions or are in a growing stage. It should be realized that basically, not all industrial sectors grow at the same speed under certain economic conditions. The ability to determine and select which industrial sectors have significant growth has the potential to bring benefits.

Apart from being in line with the conditions of a country's economic growth, industrial growth in a country is influenced by government regulations or regulations. We have to look at both the macro policy and the fiscal policy made. Therefore, looking at some regulations to see the potential for industrial growth is very important. Pay close attention to whether the existing regulations impede or support the growth of the industrial sector.

3. Analysis of the Company's Financial Statements

Analysis of financial statements can be done by analyzing and assessing the financial health of the company. The soundness of the company's finances can be observed from the financial statements issued. Usually, this financial report includes 3 (three) things, namely, income statement, balance sheet, and cash flow. Of course, a company that has posted successive profits for three consecutive years is more promising than one that is consistently losing money.

Besides, in determining a healthy and good company, financial ratios can be assisted. Financial ratios are a financial analysis tool used by companies in assessing their company's performance based on comparisons of financial data in the financial statements, such as balance statements, cash flow reports, and income statements.
With the existence of financial ratios, company management, investors, and creditors will find it easier to analyze business performance, find out the problem points, finances, and financial weaknesses of the company, and make it easier to make decisions.

4. Analisa Good Corporate Governance (GCG)

GCG is one of the main elements an investor considers when he chooses from some companies to invest in. This is because a company that has good corporate governance (GCG) is usually led by executives and management who are honest and experienced and have qualified organizational capabilities. This will increase the confidence of investors to choose the company to invest their money in.

In contrast to fundamental analysis, technical analysis is carried out by utilizing historical data related to changes in stock prices in the past, trading volume, and other indicators. However, we will discuss this technical analysis in our next tips.


1 Response to "How to Select Stocks with Fundamental Analysis"

  1. You make so many great points here that I read your article a couple of times. Your views are in accordance with my own for the most part. This is great content for your readers. best stocks to invest in today

    ReplyDelete

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