02 fundamental analysis


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noorulhadi Lecturer at Govt College of Management Sciences, noorulhadi99@yahoo.com
i have prepared these slides and still using in mylectures, Reference: Portfolio management by S kevin and onlin

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02 fundamental analysis

  1. 1. Portfolio Management LECTURE TWO Fundamental Analysis Prepared By: Noorulhadi Qureshi Lecturer Govt College of Management Sciences Peshawar
  2. 2. Fundamental AnalysisFundamental Analysis is to evaluate a lot information about the past performance and the expected future performance of companies, industries and the economy as a whole before taking the investment decision. Such evaluation or analysis is called fundamental analysis.
  3. 3. Fundamental Analysis (con’t)Fundamental analysis is really a logical and systematic approach to estimating the future dividends and share price.Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. There are several possible objectives:• To conduct a company stock valuation and predict its probable price evolution,• to make a projection on its business performance,• to evaluate its management and make internal business decisions,• to calculate its risk.
  4. 4. Fundamental analysis includes:• Economic analysis• Industry analysis• Company analysis
  5. 5. Fundamental Analysis Company AnalysisThe Analysis ofeconomy, industry and Industry analysiscompany constitute themain activity in the Economy Analysisfundamental approachto security analysis.And can be viewed asdifferent stages ininvestment decisionmaking process. Three tier analysis depict that company performance dependent not only on its own effort but also on the general industry and economy factor.
  6. 6. Economy Analysis Boom Economy: Income rise and demand for goods will increase the industries and companies in general tend to be prosperous. Recession Economy:Income decline and demand for goods will decrease the industries and companies in general tend to be bad performance
  7. 7. Economy analysis (con’t)Growth rates of national income(GRNI)GRNI is an important variable can be calculated by GDP, NNP, and GDP to analysis the growth rate of economy.Four stages of economy or economic cycle i.e depression, recovery, boom and recovery of economy of nation also impact on security performance.
  8. 8. • Depression: At this stage demand is low and declining inflation often high and so are interest rate, companies usually reduce activities and securities performance is poor.• Recovery: Economy begin to revive after depression, demand pick up leading, production and activities increase.• Boom: High demand with high investment and production, companies earn more profit• Recession: Companies slowly begins downturn in demand, production and employment, profits are also decline.
  9. 9. Inflation:Inflation prevailing significant impact on company performance. High inflation upset company plan. Demand goes down because purchasing power fall, high inflation impact company performance adversely. Inflation is measured both inWPI (Wholesale price index)CPI (Consumer price index)
  10. 10. Interest RateInterest rates determine the cost and availability of credit for companies operating in an economy.Low interest rate=> easily and cheaply available credit. => lower cost of finance => high profitabilityHigh interest rate => higher cost of production=>lower profitability=>Lower demand
  11. 11. Government revenue, expenditure and deficit• Government is the largest investor in economy of any country thus revenue, expenditure and deficit have significance impact on the performance of industries and companies.• Expenditure stimulate demand and creates job.• The excess of expenditure over revenue is deficit, (budget deficit), most expenditure are spent on infrastructure, and deficit financing fuel inflation.
  12. 12. Exchange rate• The balance of trade in import and export determine the rate of exchange rate.• Depreciation of local currency improve the competitive position in foreign market the performance of exported product but it would also make the imported product more expensive.• A foreign Exchange reserves is needed to meet several commitments such as payment for import and servicing of foreign depts.
  13. 13. Infrastructure.• Development of a economy depends very much on the infrastructure available. Industry needs electricity for its manufacturing activities road and railways to transport raw material and finished good. Communication channels help supplier and customers.• Good infrastructure is symptoms of development.• Bad infrastructure lead to inefficiencies, low productivity wastages and delay.• Investors should analysis the infrastructure of any economy.
  14. 14. Seasonal impact• Pakistani economy depends on agriculture sectors, the economy is also depend the performance of agriculture, optimistic forecasting of weather condition will prosper the economy condition.• Weather forecasting becomes a matter of great concern for investor in the economy of agricultural country.