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# Fundamental analysis hard copy

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### Fundamental analysis hard copy

1. 1. K.E.S’s SHROFF COLLEGE OF ARTS & COMMERCE SUBJECT: Equity market-II
2. 2. Class: S.Y.B.F.M. Semester: 4 th PRESENTATION ON: Fundamental analysis Submitted to: Prof. priya shroff Academic year: 2011-12
3. 3. Group Members Name Roll No. PRIYANK DARJI 06 HARDIK NATHWANI 27 SHASHANK PAI 28 SAGAR PANCHAL 29 DHARMIK PATEL 32 KUSH SHAH 39 SIDDARTH TAWDE 46
4. 4. Introduction Fundamental analysis of a business involves analyzing its Financial statement and health, Its management and competitive advantage, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interested, production, earning and management. When analyzing a stock, future contracts, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. As the market relentlessly calls into question virtually every portion of your stock portfolio, even the most independent-minded investor can start doubting himself. You wonder did I make the right decisions when I bought these stocks? To answer yourself in any rational fashion, you need to be able to judge whether circumstances, not just psychology, have changed for your holdings. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are some objectives: 1) To conduct a company stock valuation and predict its probable price evolution 2) To make a projection on its business performance, to evaluate its management and make internal business decisions, to calculate its credit risk.
5. 5. Meaning of Fundamental analysis  Fundamental analysis is a method used to determine the value of a stock by analyzing the financial data that is 'fundamental' to the company. That means that fundamental analysis takes into consideration only those variables that are directly related to the company itself, such as its earnings, its dividends, and its sales. Fundamental analysis does not look at the overall state of the market nor does it include behavioral variables in its methodology. It focuses exclusively on the company's business in order to determine whether or not the stock should be bought or sold.  Fundamental analysis is a stock valuation method that uses financial and economic analysis to predict the movement of stock prices.  Fundamental analysis is the study of economic, industry, and company conditions in an effort to determine the value of a company's stock. Fundamental analysis typically focuses on key statistics in a company's financial statements to determine if the stock price is correctly valued.
6. 6. overview Fundamental analysis is the study of economic, industry, and company conditions in an effort to determine the value of a company's stock. Fundamental analysis typically focuses on key statistics in a company's financial statements to determine if the stock price is correctly valued. They realize that some people will find a discussion on fundamental analysis within a book on technical analysis peculiar, but the two theories are not as different as many people believe. It is quite popular to apply technical analysis to charts of fundamental data, for example, to compare trends in interest rates with changes in security prices. It is also popular to use fundamental analysis to select securities and then use technical analysis to time individual trades. Even diehard technicians can benefit from an understanding of fundamental analysis (and vice versa). Interpretation Most fundamental information focuses on economic, industry, and company statistics. The typical approach to analyzing a company involves four basic steps: 1) Determine the condition of the general economy. 2) Determine the condition of the industry. 3) Determine the condition of the company.
7. 7. Economic Analysis The economy is studied to determine if overall conditions are good for the stock market. Is inflation a concern? Are interest rates likely to rise or fall? Are consumers spending? Is the trade balance favorable? Is the money supply expanding or contracting? These are just some of the questions that the fundamental analyst would ask to determine if economic conditions are right for the stock market. Industry Analysis The company's industry obviously influences the outlook for the company. Even the best stocks can post mediocre returns if they are in an industry that is struggling. It is often said that a weak stock in a strong industry is preferable to a strong stock in a weak industry. Company Analysis After determining the economic and industry conditions, the company itself is analyzed to determine its financial health. This is usually done by studying the company's financial statements. From these statements a number of useful ratios can be calculated. The ratios fall under five main categories: profitability, price, liquidity, leverage, and efficiency. When performing ratio analysis on a company, the ratios should be compared to other companies within the same or similar industry to get a feel for what is considered "normal." At least one popular ratio from each category is shown below.
8. 8. Fundamental analysis of stocks in india The process of fundamental analysis involves examining the economic, financial & other qualitative as well as quantitative factors related to a security so as to determine its intrinsic value. While usually this method is used to evaluate the value of a company’s stock, it can also be used for any kind of security, like bonds or currency. Fundamental analysis is also known as quantitative analysis and involves delving into a company’s financial statements (such as profit and loss account and balance sheet) in order to study the various financial indicators (such as earnings, liabilities, revenues, expenses and assets). Such an analysis is usually carried out by brokers, analysts, and savvy investors. Two approaches in fundamental analysis While carrying out fundamental analysis, investors can use any of the following approaches: Top-down approach: in this approach, an analyst investigates both national and international economic indicators, like energy prices, gdp growth rates, inflation and interest rates. The analysis of total sales, price levels and foreign competition in a sector is also done in order to identify the best business in the sector. Bottom-up approach: In this method, an analyst starts the search with specific businesses, irrespective of the industry or region.the analysis of a business health starts with financial statement analysis that includes ratios. It looks at dividends paid,operating cash flow,new equity issues and financing.
9. 9. Fundamental analysis tool These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market. For convenience, I have broken them into separate articles. Each article discusses related ratios. There are links in each article to the other articles and back to this article. Earning per share: The overall earnings of a company are not in itself a useful indicator of a particular stock's worth. Low earnings and low outstanding shares could be more valuable than high earnings along with a high number of outstanding shares. The Earnings per share is much more practical information than earnings by itself. Earnings per share (EPS) is arrived at by dividing the net earnings by number of outstanding shares. EPS = (NPAT- PD)/ NO.OF EQUITY SHARE Price earnings ratio (P/E ratio): The Price to Earnings Ratio (P/E) indicates the relationship between stock prices and company earnings. It is computed by dividing the share price by the Earnings per Share. The P/E indicates how much investors are willing to pay for a particular company's earnings. A high P/E can mean that the company is overpriced or it could also mean that investors are expecting the company to continue growing and generate profits. P/E ratio = MPS/EPS
10. 10. Dividend payout ratio: is calculated to find the extent to which earnings per share have been used for paying dividend and to know what portion of earnings has been retained in the business. It is an important ratio because ploughing back of profits enables a company to grow and pay more dividends in future. Dividend payout ratio= Dividend per share / EPS Dividend yield ratio: It is the relationship between dividends per share and the market value of the shares. This measurement tells you what percentage return a company pays out to shareholders in the form of dividends. Older, well-established companies tend to payout a higher percentage then do younger companies and their dividend history can be more consistent. Dividend yield ratio = DPS/MPS Price to book ratio: The P/B ratio is the value that the market places on book value of the company and is calculated by dividing current price per share by book value per share (i.e. book value / number of outstanding shares). Companies having a low P/B are good and often chosen by long term investors who see the company’s potential. P/B = Share Price / Book Value Per Share
11. 11. Book value: A company's book value is a price ratio calculated by dividing total net assets (assets minus liabilities) by total shares outstanding. Depending on the accounting methods used and the age of the assets, book value can be helpful in determining if a security is overpriced or under-priced. If a security is selling at a price far below book value, it may be an indication that the security is under-priced.. book value = assets – liability price to sale: One ratio you can use is Price to Sales or P/S ratio. This metric looks at the current stock price relative to the total sales per share. You calculate the P/S by dividing the market cap of the stock by the total revenues of the company.you can also calculate the P/S by dividing the current stock price by the sales per share. P/S = Market Cap / Revenues or P/S = Stock Price / Sales Price Per Share