FUNDAMENTAL ANALYSIS.pptx

FUNDAMENTAL ANALYSIS

1. FUNDAMENTAL ANALYSIS Ramya B Assistant Professor B.com(PA) Sri Ramakrishna College of Arts and Science Coimbatore - 641 006 Tamil Nadu, India

2. Fundamental A nalysis Fundamental analysis (FA) is a method of measuring a security's inbuilt value by examining related economic and financial factors. Fundamental analysts study anything that can affect the security's value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company's management. Fundamental analysis is the study of how external and internal factors affect the price of a company’s securities.

3. Quantitative and Qualitative Fundamental Analysis The various fundamental factors can be grouped into two categories: quantitative and qualitative. The financial meaning of these terms isn't much different from their standard definitions. Here is how a dictionary defines the terms:  Quantitative – "related to information that can be shown in numbers and amounts."  Qualitative – "relating to the nature or standard of something, rather than to its quantity."

4. In this context, quantitative fundamentals are hard numbers. They are the measurable characteristics of a business. That's why the biggest source of quantitative data is financial statements. Revenue, profit, assets, and more can be measured with great precision. The qualitative fundamentals are less tangible. They might include the quality of a company's key executives, its brand-name recognition, patents, and proprietary technology.

5. ECONOMIC ANALYSIS Definition: An economic analysis is a process followed by experts to understand how key economic factors affect the functioning of an organization, industry, region or any other particular population group, with the purpose of making wiser decisions for the future. It is a broader term that can mean simple and concise or sophisticated and complex identification, study and projection of economic variables.

6. Economic Analysis is a study of the following factors. 1. Gross Domestic Product (GDP): GDP is the total value of goods and services produced in an economy. 2. Inflation: High inflation reduces investor’s purchasing power. This reduces the overall demand in an economy. Low demand means less revenue. When companies earn less it directly affects investor sentiments.

7. 3. Interest rates: When interest rates are high, businesses are forced to borrow money at high rates. This increases the cost of capital reducing company’s profitability. 4. Economic & Political Stability: A stable political environment is important for businesses. Companies can work in the long term only when there is stable political climate in the country. For example: Investors prefer investing in companies based in USA, UK than politically unstable countries like Syria or Iran.

8. INDUSTRY ANALYSIS The second face of fundamental analysis consists of a detailed analysis of a specific industry; its characteristics, its past record, its future prospects. The purpose of industry analysis is to identify those industries which are likely grow in the future and to invest in equity share of companies selected from such industries. Industry level analysis will help investors to select the industries on innovation, technology, cyclical blues, FERA or FMCG companies of consumer goods producers and all high demand oriented group of industries.

9.    All industries have various stages of growth: - Stage 1 : Innovation, technological development, initial phase and cyclic phase. (pioneering stage) Stage 2 : Growth Phase. (expansion stage) Stage 3 : Competitive or Maturity Phase. (stagnation stage) Stage 4 : Declining Phase. (declining stage)

10. COMPANY ANALYSIS Investors  many times find that though a particular industry may be doing very well, certain companies in that industry may not be in good shape. On the other hand it is quite likely that one or two companies would do well in a slump industry. Hence selecting individual companies for investment in a given industry is equally important. There are two major components of industry analysis.

11. a) Non financial aspects:-  The scope of the non financial aspects covers the study about the history and track record of the promoters, relevant technology, brand image of products, industrial relations, industry reputation in the market,  infrastructure, market share of  the company likewise. b)   Financial Analysis:-  Important fundamental criteria are covered in this column. There are some important fundamental factors one has to know in this analysis.  Equity , sales, book vale, operating profit, gross profit, net profit, earning per share, price earning ratio, dividend,  are some of the above factors to study.