3. Dr. NGPASC
COIMBATORE | INDIA
Dr. NGPASC
COIMBATORE | INDIA
Fundamental Analysis is the study of the various factors that
affect a company’s earnings and dividends.
Fundamental analysis studies the relationship between a
company’s share price and the various elements of its
financial position and performance.
8. Dr. NGPASC
COIMBATORE | INDIA
An Company analysis is a study of the
variables that influence the future of a firm
both qualitatively and quantitatively.
It is a method of assessing the competitive
position of a firm, its earning, profitability,
the efficiency with which it operates its
financial position and its future with
respect to the earning of its shareholders.
Introduction
9. Dr. NGPASC
COIMBATORE | INDIA
Introduction
• The fundamental nature of analysis is that
each share of a company has an intrinsic
value which is dependent on the company's
financial performance, quality of
management, record of its earnings and
dividend.
• They believe that the market price of share
in a period of a time will move towards its
intrinsic value.
10. Dr. NGPASC
COIMBATORE | INDIA
Introduction
•If the market price of a share is lower
than the intrinsic value, as evaluated by
the fundamental analysis, then the
share is supposed to be undervalued
and it should be purchased,
•But if the current market price shows
that it is more than intrinsic value then
according to the theory the share
should be sold.
12. Dr. NGPASC
COIMBATORE | INDIA
Certain items analyzed in income statement
Inventory cost
methods
Earnings
from regular
operations
Depreciation
Financial
position –
Balance sheet
Earnings per
share
Intangibles
13. Dr. NGPASC
COIMBATORE | INDIA
Ratios relevant for equity shareholders
Earnings per share
Price Earnings ratio
Pay-out ratio
Book value & par value per share
Dividend & Yield
14. Economic value added
• EVA is a new concept developed by Stern
Stewart& Co. to compare the after tax profits
with cost of capital. The amount of earning
above the amount of capital employed is called
EVA.
• In other words its wealth added to the net worth
of the shareholders.
• EVA is a measure of profitability of a company in
excess capital employed by the company.
Dr. NGPASC
COIMBATORE | INDIA
15. Economic value added
EVA = EBIT – Taxes – Cost of funds employed
EVA increases when:
• A company is efficient and its profits increase
due to its operations.
• The return is greater than the cost of procuring
new funds.
• Capital that is not productive is liquidated by the
company.
Dr. NGPASC
COIMBATORE | INDIA
16. Economic value added
•Equities of the company – control the
cost of a firm.
•Break even chart.
•Total fixed cost and variable cost of a
firm, the loss area and profit area.
Dr. NGPASC
COIMBATORE | INDIA
18. Sources of financial information
• Fundamental analyst insists that the investor
should also be aware of the sources of
information that are available to him while
evaluating a firms performance.
• This gives a fairly good idea of both the
company's internal management as well as the
analysts opinion who makes projection of these
firms without actually managing their funds.
Dr. NGPASC
COIMBATORE | INDIA
19. Sources of financial information
•Annual report.
•Financial Dailies.
•Directories.
•Stock exchange directory.
•Kothari's economic & industrial guide
of India.
•Times of India Directory
Dr. NGPASC
COIMBATORE | INDIA
20. Fundamental valuation Models
A. Timbergen Model
B. William’s Model
C. Graham Dodd Model
D. Walter Model
E. Earnings Model
F. Bodenhorn’s Model
G. Ezra Solomon’s Model
H. Modgillani Miller Model (MM Model)
Dr. NGPASC
COIMBATORE | INDIA
