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Meaning
It is a stock valuation method
that uses financial and economic analysis
to predict the movement of stock prices.
Fundamental Analysis:
Meaning
Fundamental Analysis:
Definition
Fundamental Analysis attempts to find out the
true value of securities so that the investors
can decide to buy or not to buy the securities at
the current market price.
Therefore, it can be said that the analysis of
the determinants of the fair value of a
security is called the fundamental analysis.
Fundamental Analysis:
Introduction
Fundamental Analysis:
Introduction
Intrinsic Value
Decision
No action
Fundamental Analysis: A
Framework
Economy Fundamentals
2.
Industry Fundamentals
3.
Company Fundamentals
Thus, the Fundamental analysis is a three
phase analysis of (a) Economy (b) Industry &
(c) Company.
Fundamental Analysis:
Phases
Phase Nature of
Analysis
Purpose
Tools &
Techniques
First
Economic
Analysis
To assess
the Economic
general economic Indicators
situation of national
&
international
environment.
Second
Industry
Analysis
To
review
prevailing
conditions with a
specific
industry
audit segment.
Performance
indicators,
demand & supply
position,
competition
&
government
policies
Fundamental Analysis:
Phases
Company
Analysis
To
analyze
the financial &
non-financial
aspects of a
company
to
determine
whether
to
buy or sell or
hold on to the
shares of a
company.
Tools &
Techniques
Non
financial
analysis: position of
promoters,
management, product
quality,
corporate
image, location etc.
Financial
analysis:
EPS, sales, profitability,
dividends record, asset
growth etc.
Fundamental Analysis:
Phases
COMPANY ANALYSIS
INDUSTRY ANALYSIS
ECONOMIC ANALYSIS
Fundamental Analysis:
Approaches
Small investors can take a narrow approach to
fundamental analysis. They may start with the
company. This approach may be known as
bottom-up approach.
The basic premise of the bottom-up approach
is that the undervalued shares would provide
superior and better returns irrespective of the
overall economic & industry position.
Fundamental Analysis:
Approaches
A broader framework for fundamental analysis
is known as top-down approach. This
approach attempts to study the economic
scenario, industry position and the company
expectations.
This approach is also known as EconomicIndustry-Company Approach.
Fundamental Analysis:
Approaches
Fundamental Analysis:
Economic
Economic Analysis deals with the analysis of
forces operating in the overall economy.
The economic analysis helps to identify
whether the economic climate is conducive
or not for the growth of the business in general.
Fundamental Analysis:
Economic
The economic analysis involves the analysis of
the following factors:
1.Economic Growth (GDP)
2.Business
Cycles
(Boom,
Recession,
Depression, Recovery)
3.Inflation
4.Interest Rates
5.Monetary Policy, Money Supply & Liquidity
Fundamental Analysis:
Economic
6.Other Factors:
Industrial Growth Rate,
Agricultural Output & Rainfall Pattern,
Foreign Exchange Reserves,
Growth of Infrastructural Facilities,
Global Industrial Linkages,
Savings Pattern,
Population & Employment Scenario,
Economic & Political Stability.
Fundamental Analysis:
Industry
The second phase of fundamental analysis
consists of a detailed analysis of specific
industry, its characteristics, past records,
present state & future prospects.
The purpose of the industry analysis is to
identify the industries with a potential for
future growth.
Fundamental Analysis:
Industry
Associated
with
technological
development.
Rapid growth in production.
Larger profits for early entered firms.
Heavy competition.
Only few efficient companies remain
in the industry.
Fundamental Analysis:
Industry
Fundamental Analysis:
Industry
Fundamental Analysis:
Industry
Fundamental Analysis:
Company
The third element of the E-I-C approach to
fundamental analysis is the company analysis
Company analysis is a method of assessing the
competitive position of a firm, its earnings &
profitability, the efficiency with which it operates
its financial position & its future earnings per
share.
Fundamental Analysis:
Company
Various steps involved are as follows:
1.Analysis of the management of the company.
2.Analysis of the its financial performance.
3.Evaluation of its long-term vision & strategies.
4.Analysis of key success factors.
Fundamental Analysis:
Company
Sources of information are as follows:
1.Balance Sheet or the Position Statement.
2.Income Statement or the Profit & Loss Account.
3.Cash Flow Statement, the statement of sources
& uses of cash.
Fundamental Analysis:
Company
The following factors help in the analysis of a
particular scrip:
1. Marketability
2. Accounting System
3. Profitability
4. Dividend Policy
5. Capital Structure
6. Financial Analysis
7. Operating Efficiency
8. Management Capability