Table of Contents
What is fundamental analysis?
Fundamental analysis is a method of evaluating a company by its financial statement. It involves studying the income statement, balance sheet and cash flow statement to determine its value. This type of analysis is used to identify undervalued or overvalued stocks.
How can you use fundamental analysis to benefit your portfolio in Singapore?
There are a few ways you can use fundamental analysis to benefit your portfolio in Singapore.
Identify undervalued stocks
You can use fundamental analysis to identify undervalued stocks. Undervalued stocks are those that are priced lower than their intrinsic value. You can hope to earn a profit when the stock price rises to its intrinsic value by buying these stocks.
Screen for good investment opportunities
You can also use fundamental analysis to screen for good investment opportunities. By looking at the financials of a company, you can get an idea of how strong the company is and whether it is worth investing in.
Track a company’s financial performance
You can use fundamental analysis to track a company’s financial performance over time. It will help you make better investment decisions in the future.
Some tips on how to conduct fundamental analysis
Here are some tips on how to conduct fundamental analysis:
Review the financial statements
When conducting fundamental analysis, you should start by reviewing the company’s income statement, balance sheet, and cash flow statement. It will give you an idea of the company’s financial health.
Analyse the company’s performance
After reviewing the financial statements, you should then analyse the company’s performance. You can do this by looking at critical ratios such as the price-to-earnings ratio, earnings per share and return on equity.
Compared to other companies
It is also helpful to compare its financials to those of its competitors. It will give you a better idea of how the company is performing relative to its peers.
The benefits of using fundamental analysis in your investment decisions
There are several benefits of using fundamental analysis in your investment decisions:
It can help you identify suitable investment opportunities.
By conducting fundamental analysis, you can get an idea of a company’s financial health and worth investing in. It can help you find good investment opportunities that others may miss.
It can help you track a company’s financial performance over time.
By tracking a company’s financial performance over time, you can make better investment decisions in the future. It is because you will see how a company’s financials have changed over time and how this has affected the stock price.
It can help you make more informed investment decisions.
Fundamental analysis can help you make more informed investment decisions by providing you with a better understanding of a company’s financials. It will enable you to make better-informed investment decisions that are less likely to lead to losses.
A case study of how fundamental analysis can benefit your portfolio
To illustrate how fundamental analysis can benefit your portfolio, let’s consider a hypothetical example.
Assume that you consider investing in Company XYZ, which is currently trading at $10 per share. You conducted some research and found that the company has solid financials and is expected to do well in the future. You believe that the company is undervalued and decided to buy 1,000 shares based on your analysis.
A few months later, the company announced some positive news, and its share price rose to $12 per share. As a result of this, your investment has increased in value by $2,000. If you had not conducted a fundamental analysis, you might have missed out on this investment opportunity.
In conclusion
Fundamental analysis can be a valuable tool for investors. It can help you identify suitable investment opportunities, track a company’s financial performance and make more informed investment decisions. Fundamental analysis is not without its risks, but it can help you achieve your investment goals if used correctly.
Brokers like https://www.home.saxo/en-sg/products/stocks offers effective tools online to help you learn more about technical and fundamental analysis.