fundamental_analysis

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FUNDAMENTAL ANALYSIS

Fundamental analysis is examination of the underlying forces that affect the well being of

examination of the economy, industry groups, and companies. As with most analysis, the

goal is to derive a forecast and profit from future price movements.

INTERPRETATION

Most fundamental information focuses on economic, industry, and company statistics.

The typical approach to analyzing a company

involves three basic steps:

1. Determine the condition of the general

economy.

2. Determine the condition of the industry.

3. Determine the condition of the

company.

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

It is the study of industries which are on the upswing. The ideal investment is the

investment in the growing industries. It is often said that a weak stock in a strong industry

is preferable to a strong stock in a weak industry. In order to make productive

investments the investor should know the industry classification used in the economy. It

is also enviable to know the characteristics, problems and practices in different industries.

COMAPNY 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. While performing ratio analysis of 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."

Phase Fundamental Analysis: -

Phase

Nature of

analysis

Purpose

Tools & Techniques

First

Economic

Analysis

To assess the general

economic situation both

within the country and

internationally

Economic indicators – lead,

lag and coincidental

indicators

Second

Industry

Analysis

To review prevailing

conditions within a specific

industry and its segments

Performance indicators –

aggregate demand & supply

position, internal &

external competition,

government policies

Third

Company

Analysis

To analyze the financial &

non-finance aspects of a

company to determine

whether to buy, sell, or hold

onto the shares of a company

Non-financial aspects

analysis like promoters,

management, vital product

quality, corporate image,

etc. financial aspects like

EPS, sales, profitability,

dividend record, asset

growth

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FUNDAMENTAL ANALYSIS Fundamental analysis is examination of the underlying forces that affect the well being of examination of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. INTERPRETATION Most fundamental information focuses on economic, industry, and company statistics. The typical approach to analyzing a company involves three basic steps: 1. Determine the condition of the general economy. 2. Determine the condition of the industry. 3. Determine the condition of the company. 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 It is the study of industries which are on the upswing. The ideal investment is the investment in the growing industries. It is often said that a weak stock in a strong industry is preferable to a strong stock in a weak industry. In order to make productive investments the investor should know the industry classification used in the economy. It is also enviable to know the characteristics, problems and practices in different industries. COMAPNY ANALYSIS After determining ...
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