*Fundamental analysis is one way to analyze company / stock performance to maximize return on investment.* How to perform fundamental analysis?

Stock Analysis: Technical Analysis and Fundamental Analysis

The two most common ways of analyzing stocks are technical analysis and fundamental analysis.

• Technical analysis is usually used to analyze the price movement of a stock. Technical analysis is usually used by traders (stock traders).
• Fundamental analysis is usually used to analyze the financial condition and value of a company. Fundamental analysis is used by stock investors.

A more detailed explanation regarding the differences in fundamental analysis and stock analysis will be explained in different articles. This time we will discuss fundamental analysis specifically.

Definition of Fundamental Analysis

Fundamental analysis can be interpreted as an approach to find out a company's financial condition (whether it is healthy or not) and calculates the valuation (fair value) of a company.

Top Down and Bottom Up Analysis

In general, there are two analysis strategies in investing, namely top down and bottom up. Here are the differences between the two:

Top Down Analysis The Top Down analysis approach is an approach from a country's macroeconomic perspective (eg GDP, inflation, economic policy etc.), then sector or industry analysis and finally the company.

Bottom Up Analysis The Bottom Up analysis approach is an approach from the company side (financial reports and valuations), then compared to similar companies in one sector or comparisons between sectors. Last but not least, it analyzes the prospects for the future in terms of macroeconomics.

3 Types of Stock Investors

In general, fundamental analysis is used by stock investors. Fundamental analysis has various indicators (eg net profit growth, company valuation or dividends).

Three types of investors use fundamental analysis:

Value Investor Investors who buy well-performing stocks at a discount. In Indonesia, stocks suitable for value investors are categorized in the IDX Value30 index (code: IDXV30).

Growth Investor Investors who buy stocks with high growth at an appropriate price (growth at a reasonable price). In Indonesia, stocks suitable for growth investors are categorized in the IDX Growth30 index (code: IDXG30)

Dividend Investor Investors who buy stocks that regularly pay dividends. In Indonesia, stocks suitable for dividend investors are categorized in the IDX High Dividend 20 index (code: IDXHIDIV20).

Fundamental Analysis Strategy

The way fundamental analysis works is:

Input

Fundamental analysis requires some input or information such as

• Company financial report (quarterly or annual report). Financial reports can be accessed on the company's investor relations section of the company's website or the Indonesia Stock Exchange's website.
• Public expose which tells about the company's management to the public and shareholders.
• Shareholder report containing the position of the company's share ownership.
• Related news obtained from newspapers or online news portals.

Process

Analysis of financial statements

Financial statement analysis can be done by reading the financial statements along with their footnotes. Each written number usually contains a story and information.

Based on the data from the financial statements, the company's financial condition can be identified as, for example:

Income Statement

• Is sales growing?
• Are operational costs increasing?
• Is net profit growing?
• Etc

Balance Sheet

• Are assets growing?
• Is debt reduced?
• Is net worth (equity) growing?
• and so forth

Cash Flow Statement

• Is operating cash flow growing?
• Is funding cash flow increasing/decreasing?
• Is investment cash flow increasing/decreasing?
• and so forth

Financial Report Ratio Analysis

The following are some of the financial statement ratios that can be used to analyze a company's financial condition:

A more detailed explanation of financial ratios will be discussed in a separate article. If you need investment advice or consulting please contact a Moduit Wealth Advisor.

Company Valuation

The following is the analysis of financial statements, eg

A more detailed explanation of how the valuation is calculated will be discussed in a separate article. If you need investment advice please contact a Moduit Wealth Advisor for a consultation.

Output

From the analysis and calculation results, information can be obtained:

Intrinsic Value

Intrinsic Value describes the fair value of a company obtained from the company's valuation.

Margin of Safety

The Margin of Safety is the difference between the current price and the intrinsic value. After calculating the valuation, it was found that the fair price for ABCD's shares was IDR 1,000 per share. Currently, ABCD's share price is IDR 600 per share.

Therefore the Discount or Margin of Safety is = (1,000 – 600) / 1,000 = 400 / 1,000 = 40%

What is the potential profit? = (1.000 – 600) / 600 = 66,67%

The greater the Margin of Safety, the greater the Potential Profit.

Investment Decisions

Based on a series of fundamental analysis processes, starting from input, process and output, one can conclude whether to INVEST or NOT?

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