Fundamental analysis is studying or analyzing the condition of the company in terms of finance, operations and business as well as its future prospects. This financial analysis is generally carried out by reviewing financial reports and financial ratios. From the results of this analysis, an investor can use it to determine whether a stock is bought or not.

However, if you use fundamental analysis to buy shares, just looking at the condition of the company is not enough! There are other important steps you must take. You also have to look at the macro economic condition and then the industrial conditions in which the company is located. These two things can affect the movement of a company's stock price. Macroeconomic conditions that support the industry so that it develops rapidly will increase the company's share price.

Fundamental Analysis Explanation

One approach that is often used in fundamental analysis is the Top Down Approach. This method is an analysis that starts from the condition or condition of the macro economy, the company, and the condition of the company.

The Top Down Approach has three stages, namely:

1. Macro Conditions

This one factor is influenced by the Government's economic policy. One of them is the interest rate policy.

If the interest rate is high, investors will put their money in the bank. Thus, this will hamper the company's business growth rate.

Meanwhile, if the interest rate is low, stocks are the choice for investors and companies to do business.

In addition, economic growth also determines stock price movements. If the economy is sluggish, the company's performance will decline along with its share price. If the economy is strong, the company's future will be bright along with its share price.

2. Sector and Industry

As already explained, the condition of the company also affects stock price movements.

For example, commodity prices in the mining sector also skyrocketed because world oil prices rose in 2007. The share prices of coal and oil mines also rose, because the revenue and profits generated were getting bigger.

In 2005, world oil prices fell again to their lowest point. Then, the price of mining shares also dropped dramatically.

3. Company Fundamentals

The company's fundamental problems certainly greatly affect stock price movements.

For example, does the company have good management, what is the financial condition of a company, and whether the management is managed by competent people.

This is the most important point in determining whether or not the fundamental analysis of a company is good. Usually, companies with fundamentals have a pretty good share price.

Choosing Stocks Through Fundamental Analysis

When viewed from the fundamental analysis of stocks, one of the things that must be considered is the guidelines for determining whether a stock is good or bad. The following are some of the criteria that you can use:

• Has a market capitalization of more than IDR 500 billion.

• Issuer / company with a clear business model.

• The company continues to increase its profits or shares.

• Do not have debt that exceeds the maximum standard of DER (Debt Equity Ratio).

• Average Price Earning Ratio (PER) is not much different.

Source: Ajaib.co.id