Fundamental analysis
By admin on October 10th, 2008
What?
Fundamental analysis is finding the fair value of a company. The calculation is done by using the time of money concept, which is money now is better than money in the future. By knowing how is the cash flow, the in and out of money, you can count for it’s fair price. That’s the difficult thing to do, because you need to predict how much profit will the company make.
How?
The easiest way to do this is to get valuation from your investment firm. They usually have their own research department, and can give you the target price or fair price of a stock. The hard way is to calculate the fair price by your self. To do this, you will need good financial knowledge, and master the industry condition. Choosing big companies with good fundamental, finance performance will bring lower risk, but not always high return. The analysis can be done through economic indicators such as GDP, inflation, interest rate, and oil price.
How’s the performance?
If your calculation and prediction for the fair value of a stock is true, then the performance will be good. If you know that current price is 50, and you believe that the fair price is 100, you might expect 50% increase in the price.
For who?
Fundamental analysis is for people with long term horizon. You need to be patient, waiting for the stock price to rise. If you know that it’s fair value is 100, and currently 50, then just buy the stock and wait until it reach 100, because maybe you know that the company will make a certain profit.
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