Performing fundamental stock analysis is an essential skill for any Singaporean investor, and it involves evaluating a company’s financial statements to determine its intrinsic value. Doing so can make informed investment decisions and hopefully generate superior returns over the long term.
In this article, we will discuss the various steps involved in performing fundamental stock analysis, and we will also provide some tips on how to get started. So read on to find out more. Saxo Capital Markets Singapore can provide company analysis for you.
What is fundamental stock analysis?
Fundamental stock analysis is a process of evaluating a company’s financial statements to determine its intrinsic value. It is done by looking at a company’s earnings, revenue, expenses, cash flow, and debt. By doing so, investors can gain insights into a company’s worth and make more informed investment decisions.
Fundamental analysis is crucial because it allows you to see beyond the superficial aspects of a company’s financial statements. By looking at the underlying numbers, you can better understand a company’s actual worth, and this knowledge can then be used to make more informed investment decisions. Furthermore, by performing fundamental analysis, you can avoid overpaying for a stock (i.e., buying it at a higher price than its intrinsic value).
How to perform fundamental stock analysis on a company
There are several steps involved in performing fundamental stock analysis. They are as follows:
Review the company’s financial statements
The first step is to review the company’s financial statements. It includes the balance sheet, income statement, and cash flow statement. These documents will give you an overview of the company’s financial health. It is important to note that you should always review the most recent financial statements available.
Calculate key ratios
The next step is calculating key ratios such as the price-to-earnings (P/E) ratio, earnings per share (EPS), and net margin. These ratios will give you a better understanding of the company’s financial health.
Compare the company’s ratios to its industry peers
Once you have calculated the key ratios, you should compare them to the industry averages, giving you a better idea of how the company stacks up against its peers.
Perform a discounted cash flow (DCF) analysis
The final step is to perform a discounted cash flow (DCF) analysis. It involves estimating the company’s future cash flows and discounting them to present value. By doing so, you can arrive at an estimate of the stock’s intrinsic value.
Tips on how to get started with fundamental stock analysis
If you’re new to fundamental stock analysis, here are some tips on how to get started:
When you’re first starting, it’s essential to keep things simple. You don’t need to calculate every ratio or perform a DCF analysis on every buxic stock you’re interested in. Just focus on reviewing the financial statements and calculating a few key ratios.
It’s also a good idea to start with companies you’re familiar with. It will make it easier for you to understand their financial statements and calculate the key ratios.
Finally, don’t forget to consult with a financial advisor. They can help you understand the process of fundamental stock analysis and provide guidance on which stocks to buy or sell.
What are the risks of analysing a company’s financials?
There are a few risks to be aware of when analysing a company’s financial statements. First, the statements can be misleading. For example, a company may use creative accounting techniques to make its financials look better than they are.
Even if the financial statements are accurate, they may not give you the whole picture, and this is because they only reflect the past and not the future. As such, they may not be indicative of the company’s future performance.
Finally, you should also be aware that stock prices can be volatile and move up or down rapidly. You could lose money on your investment if you’re not careful.
Tips on how to stay updated with the latest news affecting the companies you’re invested in
The best way to stay updated with the latest news affecting your invested companies is to set up Google Alerts to receive timely notices straight to your inbox.
Another way to stay updated on the latest news is to follow your invested companies on social media. Many companies have Twitter accounts and Facebook pages where they regularly post updates. By following them, you’ll stay up-to-date on all the latest news.
Finally, you can sign up for email newsletters from investment websites like Motley Fool or Morningstar. This way, you’ll receive regular updates on your interested stocks.