Fundamental Analysis

Abhay Chopra

Fundamental Analysis
A method of security valuation which involves
examining the company's financials and operations,
especially sales, earnings, growth potential, assets,
debt, management, products, and competition.
Fundamental analysis focuses
business to analyze stocks value.

on

underlying

The analysis attempts to ascertain whether stock is

overpriced, underpriced, or priced in proportion to
its market value.

Approaches to equity
Valuation
Company
Analysis
Industry
Analysis
Economic
Analysis

Top Down Research

Bottom Up
Research

Economic Analysis

GDP
Inflation
Interest Rate
International TRADE
Crude Oil Prices
Credit Policies
FDIs/FIIs

Industry Analysis
The Term Industry refers to the filed involved in
the production of goods or extraction of natural
resources. The economy of the country depends
on the industry it has.
More Industry a country has more economically
rich and stable it is.

Classification / Types of
Industries
Primary Industry
Agriculture, farming, forestry, fishing, horticulture

Genetic Industry
plant nurseries, cattle rearing, poultry, cattle breeding

Extractive Industry
mining industry, coal mineral, oil industry, iron ore, extraction of
timber and rubber from forests

Manufacturing Industry
textiles, chemicals, sugar industry, paper industry

Construction Industry
construction of buildings, bridges, roads, dams, canals

Service Industry
hotel industry, tourism industry, entertainment industry

 Introduction Stage
Growth Stage
Maturity Stage
Decline Stage

Introduction-3D TVs
Growth-Blueray discs/DVR
Maturity -DVD
Decline -Video cassette

Porters five forces of

competitive position analysis:

Supplier power
Buyer power
Competitive rivalry
Threat of substitution
Threat of new entry

Banking Overview
In the next 5-10 years, the sector is expected to create up to two million new jobs.
Two new banks have already received licences
new norms will offer incentives to banks to spot bad loans and take necessary
recourse to curb the practices of rogue borrowers.
The size of banking assets in India totalled US$ 1.8 trillion in FY 13 and is expected
to touch US$ 28.5 trillion in FY 25.
Total lending and deposits increased at a compound annual growth rate (CAGR) of
22.8 per cent and 21.2 per cent
revenue of Indian banks increased from US$ 11.8 billion to US$ 46.9 billion over the
period 2001-2010
bad loans have gone up from 1.3% in March 2009 to 3.4% in March 2013.
Road Ahead: India's banking industry could become the fifth largest banking sector globally by
2020 and the third largest by 2025
focus to servicing clients and improving their technology infrastructure
the Economic Advisory Council of Prime minister expects the economic growth to
rise to 6.4% from the current 5% on the back of the recent structural measures

Banking Sector
Supply
Liquidity is controlled by the Liquidity is controlled by the Reserve Bank of India (RBI).
Demand
India is a growing economy and demand for credit is high though it could be cyclical.
Barriers to entry
Licensing requirement, investment in technology and branch network, capital and regulatory requirements.
Bargaining power of suppliers
High during periods of tight liquidity.
Trade unions in public sector banks
Depositors may invest elsewhere if interest rates fall.
Bargaining power of customers
For good creditworthy borrowers bargaining power is high due to the availability of large number of banks
Competition
High- There are public sector banks, private sector and foreign banks along with non banking finance
companies competing in similar business segments. Plus the RBI is all set to issue new banking licenses
soon.

Auto Overview
Industry accounts for 22 per cent of the
country's manufacturing gross domestic product
(GDP)
seventh-largest in the world with an average
annual production of 17.5 million vehicles, of
which 2.3 million are exported.
FDI) inflows into the Indian automobile industry
during the period April 2000 -May 2014 was
recorded at US$ 9,885.21 million
Passenger car growth at 8-9%
Commercial Vehicles at 5-6 %

Automobile Industry
Supply The Indian automobile market has some amount
of excess capacity.
Demand Largely cyclical in nature and dependent upon
economic growth and per capita income. Seasonality is
also a vital factor.
Barriers to entry High capital costs, technology,
distribution network, and availability of auto components.
Bargaining power of suppliers Low, due to stiff
competition.
Bargaining power of customers Very high, due to
availability of options.
Competition High. Expected to increase even further.

Financial Statement
Financial
statement
analysis
is
an
evaluative method of determining the
past, current and projected performance of
a company.

Analyzing Financial Statements:

Comparative Statements
Common Size Statements
Trend Ratios
Ratio Analysis

Ratio Analysis

 Earning Per share

=net profit after perf dividend/no
of equity share
Price Earning Ratio:=Market value per equity
share/EPS

Non Financial Aspects

Business Model
Competitive Advantage
Management
Corporate Governance

The Major Statements

The Balance Sheet
The balance sheet represents a record of a company's assets, liabilities and equity at a
particular point in time. The balance sheet is named by the fact that a business's financial
structure balances in the following manner:
The Income Statement
While the balance sheet takes a snapshot approach in examining a business, the income
statement measures a company's performance over a specific time frame. Technically, you
could have a balance sheet for a month or even a day, but you'll only see public companies
report quarterly and annually.
Statement of Cash Flows
The statement of cash flows represents a record of a business' cash inflows and outflows
over a period of time. Typically, a statement of cash flows focuses on the following cashrelated activities:
Operating Cash Flow(OCF): Cash generated from day-to-daybusinessoperations
Cash from investing (CFI): Cash used for investing in assets, as well as the proceeds from
the sale of other businesses, equipment or long-term assets
Cash from financing (CFF): Cash paid or received from the issuing and borrowing of funds