Beside the Technical Analysis (TA), the Fundamental Analysis (FA) is one of the most popular terms in Stocks Trading/Investing. Fundamental Analysis is a stocks analysis method which utilizes the study of economy, industry, and company condition to determine the stocks’ fair value. Fundamental Analysis heavy utilizes the company’s financial report to calculate whether the stocks’ price has been in its real value, under value, or over value.
As mentioned before, in general, Fundamental Analysis (FA) does the Stocks’ fair value calculation based on the three factors which are economy condition, industry condition, and company condition. For better understanding, let’s take a look at the each factor:
Fundamental Analysis #1: Economy Condition Calculation
Economy Condition calculation is about how to study the Economy Condition regarding its effect to stocks price – whether the Economy condition has good effect to stocks or not. This Economy calculation includes inflation rate, consumer trust, trade balance, cash flow, and many more economy aspects. The combination of economy aspect can tell us how good or how bad the current stocks market condition so we can make our stocks trading/investing decision wisely. In short, Economy Condition calculation means that we analyze the entire economy aspects and decide the effect to stocks market – it is good or bad.
Fundamental Analysis #2: Industry Condition Calculation
It is well-known that the Industry (in where a company is included) has a big effect to the company’s future. This Industry calculation is also known as the sectoral analysis which tells us how good or bad the sectoral condition. The Industry Condition is very important since no matter how good the company performance is if the Industry/Sectoral condition is bad. In other words, the most best stocks can only give mediocre return level if in bad Industry condition. It is even better to buy the mediocre stocks in strong industry instead the strong stocks in mediocre industry. Therefore the Industry Condition calculation is very important in stocks trading/investing.
Fundamental Analysis #3: Company Condition Calculation
After calculate the Economy Condition and Industry/Sectoral Condition, the next step is to calculate the Company Condition. For your information, in here we have done the Top Down Analysis strategy which analyze from the more macro aspects to the more micro aspects. Company Condition calculation is very important since can tell us how the company’s financial condition – whether the financial condition is healthy or not. It can be said the good Economy and Industry condition is meaningless if the Company condition is in a bad shape. It is obvious that the better stocks is always from the company that has good result of health financial (based on fundamental analysis) .
Have a great stocks trading everyone!