What is a ‘fundamental analysis of an investment in Singapore?
Fundamental analysis of an investment in Singapore can be defined as the process of evaluating securities by examining all available information about an organisation.
It includes assessing financial reports and associated disclosures, macroeconomic data, industry behaviour, and laws to clearly understand factors influencing business operations.
It is helpful for investors to select companies to invest in over the long term. It should be used together with other types of analysis, such as technical or market assessments.
The actual analysis results may indicate whether the stock may be overpriced or under-priced at that particular time while also explaining how investors view their stores relative to others within the same industry.
Why is fundamental analysis important?
Fundamental analysis of an investment in Singapore provides investors with a better understanding of the company’s business.
This allows for determinations about the company’s financial health and prospects. The actual analysis results may indicate whether the stock may be overpriced or under-priced at that particular time while also explaining how investors view their stores relative to others within the same industry.
For example, suppose you feel disappointed by the performance of a particular stock you own.
In that case, it might help to find out what other analysts think about this security relative to all other companies operating in the same space before taking any decision about your shareholdings.
If other analysts are bearish on your stock but bullish on its competitors, then you would need to think about whether you should hold or sell your stock.
How is a fundamental analysis carried out?
Fundamental analysis involves making judgements about an organisation’s financial condition and prospects by gathering relevant data from external sources – including company financial statements, media releases, news reports and regulatory filings made by the firm with government regulators.
The availability of information varies depending on the type of business involved. Financial companies must complete extensive disclosures that are readily available for investors to study. In contrast, others may have limited disclosure requirements.
Only summary annual financial reports with few supporting documents must be filed with local authorities such as Accounting and Corporate Regulatory Authority (ACRA).
Therefore, it would be easier for investors to conduct a fundamental analysis of a company listed on Bursa Malaysia than ACRA.
At the same time, it would be easier for investors to carry out a fundamental analysis of an unlisted company such as a small business.
What should you look for when carrying out fundamental analysis?
When conducting fundamental analysis, the key factors that should not be missed include:
The firm’s mission statement and profile; timeline; structure including subsidiaries and affiliate companies, geographical reach.
Business segments where the company holds a strong competitive position within its industry based on barriers to entry or other distinctive features.
Key Performance Indicators
Critical success factors concerning size and growth of the market served by the firm, uniqueness of services offered and how they are delivered, the firm’s position in the industry and performance relative to its competitors.
Key management personnel, board of directors membership, tenure and background; skills sets including relevant educational qualifications and experience where applicable.
Annual financial statements which should be reviewed to ensure that they are not materially misstated or misleading, or atypical from other comparable firms within the same business type.
The state of local and global regulation, along with a review of how this has impacted company strategy over time.
What is the difference between fundamental analysis and technical analysis?
The two styles of investment analysis have some similarities but also specific differences.
- Fundamental analysts attempt to measure a security’s intrinsic value, while Technical analysts measure a security’s strength in terms of its price movements and volume.
- Fundamental and technical analysis defines the current and prospects for investment by studying characteristics such as earnings, revenue growth rates, industry factors etc
- A fundamental analyst will analyse historical data such as revenue growth trends, change in market share, profitability ratios etc., to determine how this might impact the prospects for a company. The technical analyst may also use past information but may spend more time looking at historical price charts to find trends they believe will enable them to determine future trends.
- The fundamental analyst uses accounts produced by the company itself – annual reports and quarterly results announcements as their primary data source. At the same time, technical analysts may also use broker reports and recommendations as a secondary source.
- The fundamental analyst will attempt to identify misstated accounts as part of their assessment process. In contrast, technical analysts are less concerned with the accuracy of information as they believe this has no bearing on future market prices.
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