180198286 Fundamental Analysis Ppt

7/21/2019 180198286 Fundamental Analysis Ppt

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Submitted by:Sakshi waliMBA III Sem

Submitted to :Mr. Bhanu Pratap Narania


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Fundamental analysis is a method of evaluating a

security or asset by attempting to measure itsintrinsic value by examining related economic,

financial and other qualitative and quantitative

factors.


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Fundamental analysts attempt to study everything

that can affect the security's value, includingmacroeconomic factors (like the overall economy

and industry conditions) and individually specific

factors.


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Fundamental analysis can be composed of many

different aspects: the analysis of the economy asthe hole, the analysis of an industry or that of

an individual company.


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!hus it is important for an analyst to identify the

factors that are likely to affect the value of the

underlying asset and then resort to the study of

the said factors.


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Fundamental Analysis thus involves 3

steps

Economic analysis

Company analysis

Industry analysis


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Economic Analysis

The performance of a company depends much on the

performance of the economy if the economy is BOOM, the

industries and companies in general said to e prosperous! On

the other hand, if the economy is in "ECE##IO$, the

performance of companies %ill e generally poor!

Investors are interested in studying those economic varieties,

%hich affect the performance of the company in %hich they

proposed to invest! An analy&ed of those economic variale

%ould give an idea aout future corporate earnings and thepayment of dividends and interest to investors!


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Factors afecting economicFactors afecting economic

analysisanalysis '$(

#A)I$' A$* I$)E#TME$T

I$F+ATIO$

I$TE"E#T "ATE

A'"IC+T"E

MO$#OO$ 'O)E"$ME$T E-(E$*IT"E#, "E)E$E# A$*

*EFICIT#

(O+ITICA+ #TABI+IT.

I$F"A#T"CT"E


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GNP/ Geometric ModelGNP/ Geometric Model

'$( represents the aggregate value of goods and services

produced in the economy! It reflects the over all performance

of the economy! The gro%th rate of '$( indicates the gro%th

rate of the economy the higher the rate of gro%th of '$(, themore favorale is it for the stoc/ mar/et and vice versa


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Saving & investmentSaving & investment

#avings and investment denote that position of '$(, %hich issaved and invested savings increases in India since eighties

no% the rate of savings is 012 from 02 in 456s, %hich

indicates the gro%th of capital mar/et! The higher the level ofsavings interest, the more favorale is it for the stoc/ mar/eted

vice versa


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InationInation

Inflation has considerate impact on the performance ofcompanies! 7igher rates of inflation upset usiness plans and

erode purchasing po%er in the hands of consumers! This %ill

result in lo%er demand for products! Thus high rates of inflation

in an economy are li/ely to affect the performance of companiesadversely! 7o%ever industries and companies prosper during

periods of lo% inflation! 7ence an investor has to evaluate the

inflation rates prevailing in the economy currently as %ell as the

trend of inflation li/ely to prevail in the future!


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AgricultureAgriculture

Agriculture forms a ma8or part of the Indian economy! #omecompanies are using agricultural ra% material as inputs and

some others are supplying inputs to agriculture! #uch

companies are directly affected y changes in agriculturalproduction! 7ence, the increase9decrease in agricultural

production has a significant earing on the industrial production

and corporate performance


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Rate o interestRate o interest

The cost and availaility of credit for companies aredetermined y the rates of interest prevalent in an economy! A

lo% interest rate stimulates investment y ma/ing credit

availale easily and cheaply! As a result cost of finance for

companies decreases %hich assures higher profitaility! Onthe other hand, higher interest rates result in higher cost of

production, %hich may lead to lo%er profitaility and lo%er

demand! 7ence an investor has to consider the interest rates

prevailing in the economy and evaluate their impact on the

performance and profitaility of the companies!


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G!"#$ RE"EN%E E'PEN(I#%RE &G!"#$ RE"EN%E E'PEN(I#%RE &

(EFI)I#S(EFI)I#S

'overnment is the largest investor and spender of money! #o

the trends in government revenue e:penditure deficits have

a significant impact on the performance of industries and

companies! #o the investor has to evaluate these carefully toassess their impact on his investments!


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InrastructureInrastructure

The development of an economy very much on theavailaility of infrastructure! It includes electricity, roads and

rail%ays, communication channels etc! The availaility of

infrastructural facilities affects the performance of

companies! Bas infrastructure leads to inefficiencies, lo%erproductivity, %astage and delays and vice versa! Thus an

investor should assess the status of infrastructural facilities

availale in the economy efore finali&ing his investment

avenues!


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MonsoonMonsoon

The Indian economy is essentially an agrarian economy andagriculture forms a very important sector of the Indian

economy! But the performance of agriculture to a very great

e:tent depends upon the monsoon! The ade;uacy of the

monsoon ensures the success of the agricultural activities in

India and vice versa! 7ence the progress and ade;uacy of

the monsoon ecomes a matter of great concern for an

investor in India!


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Political Sta*ilityPolitical Sta*ility

A stale political environment is necessary for steady andalanced gro%th! $o industry or company can gro% and

prosper in the midst of political turmoil! #uch long term

economic policies are needed for industrial gro%th! #uchstale policies can e framed only y stale political

systems!


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Industry AnalysisIndustry Analysis

Industry analysis indicates to an investor %hether the

industry is a gro%th industry or not! It gives an investor a

choice of the industry in %hich the investments should e

made!

Industry analysis refers to an evaluation of the relativestrength and %ea/ness of particular industries %hich can e

divided in to three parts, vi&!,

! +ife cycle of an industry

0! Characteristics of an industry

3! (rofit potential of an industry


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+ie )ycle+ie )ycle


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industryindustry

(a) Relationship between Demand & supply: "xcess supply reduces the profitabilityof the industry and insufficient supply tends to improve the profitability. !hus an

investor should estimate the demand and supply gap in an industry.

(b) Period of life: #ife of the industry depends on the products and the technology

used by the industry. !echnological changes leads to product obsolete. $o

investment should be made in such industries.

(c) State of labour: %hen there is labour revolution, industries cannot become bright.

(d) Governments attitude: !he &overnment may encourage the groth and

development of certain industries by giving much assistance to such industries.

(e) Availability of Raw Material: n industry may depend on internal external

country for ra material. ometimes they depend on import of ra material.

(f) Cost structure: *t refers to the proportion of fixed costs to variable costs. (+iscuss

about arginal -ost)

P -t t ti l P -t t ti l


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Pro-t .otential oPro-t .otential o

industryindustry

(i) hreat new entrants: $e entrants inflate cost, push don theprices and reduce profitability. n industry hich is ell protectedfrom the entry of ne firms ould be ideal for investment.

(ii) Competitions amon! e"istin! firms: !he firm competes ith eachother on the basis of price, quality, promotion, service, arranties andso on. *f the rivalry beteen the firms in an industry is strong average

profitability of the industry may be discouraged. !he rivalry in anindustry is high hen the folloing conditions prevail in the market:

(a) !here is a sustained competitive battle

(b) !he industry groth is dull

(c) !he level of fixed cost is high

(d) !here is over capacity in the industry continuing for a long time.(e) !he industry product is considered as a commodity, hich

stimulates strong competition.

(f) !he industry struggles much to ithstand.


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)om.any Analysis)om.any Analysis

It involves a close investigative scrutiny of the companiesfinancial and non financial aspects %ith a vie% to identifying itsstrength, %ea/nesses and future usiness prospects!

The financial and non financial aspects are as follo%s>

Mar/eting success Accounting (olicies

(rofitaility


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! Mareting success: The success of the mar/et of the firm depends on


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Profitability: "!


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Benefits of fundamental analysisBenefits of fundamental analysis

Finding the value of the company! *etermining %hat thecompany is %orth at today6s price %ill enale you to ma/e a

decision to either uy or sell the company

Enales to read the pulse of the company! One can

understand the financial dynamics %ithin the company anddetermine %hether is it in a good state or are there some

prolems!

7elps to identify potential companies efore the general

mar/et!

180198286 Fundamental Analysis Ppt

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