Fundamental Analysis is the process of evaluating the value of securities. It looks at economic, industry and company fundamentals. Fundamental analysis aims to find out what a security's intrinsic value is and whether the security's current price is above or below its intrinsic value.
Fundamental analysis is important to investors. This is because it allows investors to evaluate the value of securities with information and make appropriate investment decisions. Fundamental analysis can help investors avoid investing in securities that are over- or undervalued. This can lead to poor returns or losses.
Fundamental analysis can be done by considering the following factors:
- Economic factors such as interest rates Inflation rate economic growth rate Employment quantity Public debt level
- Industry factors such as industry trends Industry competition Demand and supply of goods or services of the industry.
- Company factors such as the company's financial statements Company performance Company strategy
Fundamental analysis can be divided into two main types:
- Bottom-Up Approach** is a fundamental analysis starting with the company. By considering the company's basic factors such as the company's financial statements. Company performance Company strategy Then consider the fundamentals of the industry and the overall economy.
- Top-Down Approach** is a fundamental analysis starting with the overall economy. By considering basic economic factors such as interest rates. Inflation rate economic growth rate Then we consider the fundamentals of the industry and company.
Investors can choose to use fundamental analysis methods that suit their investment style and level of knowledge.
The benefits of fundamental analysis are as follows:
- Helps investors to evaluate the value of securities with information
- Helps investors make appropriate investment decisions.
- Helps reduce the risk of losing investment funds
However, fundamental analysis also has its limitations: Fundamental analysis cannot predict the future at all. Some fundamentals can change quickly. This may cause the valuation of securities to be incorrect.
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