What is fundamental analysis?
Fundamental analysis is a method of evaluating a company by its financial statement. It provides a framework for investors to assess its current and future profitability, asset value and debt levels. The ultimate goal of performing Fundamental Analysis on a company is to estimate the intrinsic value of its shares. This valuation can be used as a basis for making investment decisions.
The primary benefit of using Fundamental Analysis is that it allows investors to filter out the noise in the stock market. To make money in the stock market, one must buy low and sell high. Fundamental analysis can help you identify stocks that are trading below their intrinsic value and may present a good investment opportunity.
Why do fundamental analysis?
There are many reasons why an investor might want to conduct Fundamental Analysis on a company. Some of these reasons include:
- To estimate the intrinsic value of a company’s shares
- To identify undervalued stocks
- To assess a company’s financial stability
- To forecast a company’s future profitability
- To understand a company’s business model
- To research potential investment opportunities
How to conduct fundamental analysis in Singapore
When conducting Fundamental Analysis, there are a few things you will need to take into account:
- You will need to research the types of information relevant to your analysis.
- You will need to interpret this information correctly.
- You will need to use the correct ratios and formulas to arrive at an accurate estimate of the intrinsic value of a company’s shares.Read more about topnewsplus
The types of information you should research
When conducting Fundamental Analysis, there are a few critical pieces of information that you should research. These include:
- The company’s financial statements
- The company’s business model
- The company’s competitive landscape
- Analyst reports and recommendations
How to interpret financial statements
One of the most important things you will need to do when conducting Fundamental Analysis is interpret a company’s financial statements correctly. Key things you should look out for when doing this. They are:
- The income statement
- The balance sheet
- The cash flow statement
Key ratios and formulas to use
To correctly estimate the intrinsic value of a company’s shares, you will need to use the correct ratios and formulas. Some of the most important ones include:
- The Price-to-Earnings (P/E) ratio
- The Earnings per Share (EPS)
- The Price-to-Book (P/B) ratio
- The Debt-to-Equity (D/E) ratio
- The Return on Equity (ROE)
An example of how to apply fundamental analysis in Singapore
To illustrate how Fundamental Analysis can be used in practice, let’s look at an example. Suppose you are interested in buying shares of Singtel, a leading telecommunications company in Singapore. Before making your investment decision, you decide to conduct some fundamental analysis on the company.
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Firstly, you research the company’s financial statements and business model. You then look at the competitive landscape to see how Singtel stacks up against its competitors. Finally, you analyze analyst reports and recommendations to understand better what the experts think about Singtel’s prospects.
After doing all this research, you conclude that Singtel is a well-managed company with a robust business model. The competitive landscape is also favourable for Singtel. Based on your Analysis, you believe that the shares of Singtel are currently undervalued and present a good investment opportunity.
It is just one example of how Fundamental Analysis can make investment decisions in Singapore. In practice, there are many other factors that you will need to consider. But if you do your research and interpretation correctly, Fundamental Analysis can help you identify stocks that are trading below their intrinsic value and may present a good investment opportunity.
Fundamental analysis is a valuable tool that can be used to make investment decisions in Singapore. But it’s important to remember that you will need to do your research and interpretation correctly. Only then will you be able to arrive at an accurate estimate of the intrinsic value of a company’s shares.
You can also visit https://www.home.saxo/en-sg/products/stocks for up to date news on the stock market in Singapore.