4 important things in the top down analysis approach in conducting fundamental analysis in order to choose profitable stocks, the following is the explanation:
1. Macroeconomic analysis
Macroeconomic analysis includes an analysis of current economic conditions and their effects on next time.
It is important to note in this macroeconomic analysis whether economic conditions are growing or are actually declining. This is important because the economic conditions of a growing country are usually in line with a bullish or increasing stock market.
2. Industrial sector analysis
This is an analysis of which industrial sectors have the opportunity to grow in certain economic conditions. In fact, basically not all industrial sectors grow at the same speed under certain economic conditions. The ability to determine and select which industrial sectors have significant growth has the potential to bring benefits.
Apart from being in line with the conditions of a country’s economic growth, industrial growth in a country is basically influenced by government regulations or regulations. We have to look at both the macro policy and the fiscal policy made. Therefore, looking at a number of regulations to see the potential for industrial growth is very important. Pay close attention to whether the existing regulations impede or support the growth of the industrial sector.
3. Analysis of the company’s financial
You can do analysis of financial statements by analyzing and assessing the company’s financial health. The soundness of the company’s finances can be observed from the financial statements issued. Usually this financial report includes 3 (three) things. Namely, income statement (income statement), balance sheet (balance sheet), and cash flow (cash flow statement).
Undeniable, a company that has posted successive profits for three consecutive years is more promising than one that is consistently losing money.
In addition, in determining a healthy and good company, You can assist financial ratios. Financial ratios are a financial analysis tool used by companies in assessing their company’s performance based on comparisons of financial data in the financial statements, such as balance statements, cash flow reports, and income statements.
With the existence of financial ratios, company management, investors, and creditors will find it easier to analyze business performance, find out the problem points, finances, and financial weaknesses of the company, and make it easier to make decisions.
4. Good Corporate Governance (GCG) analysis
Investors also consider this important element when they want to choose a number of comapanies to invest in, namely GCG. This is because a company that has good corporate governance (GCG) is usually led by executives and management who are honest and experienced and have qualified organizational capabilities. This will increase the confidence of investors to choose the company to invest their money in.
So, those are the 4 right ways to choose profitable stocks. In contrast to fundamental analysis, You can do technical analysis by utilizing historical data related to changes in stock prices in the past, trading volume, and other indicators. However, we will discuss this technical analysis in our next tips.