Scribd
Upload
396 views

Fundamental Analysis: DR Saif Siddiqui

Fundamental analysis involves evaluating economic, industry, and company factors to determine a company's intrinsic value. It assumes stock prices do not always reflect real value and that in the long run, prices will reflect fundamentals. By estimating intrinsic value and finding stocks trading at a discount, fundamental analysis aims to identify profitable investment opportunities. However, determining intrinsic value and how long it will take for the market to recognize value are challenging aspects of fundamental analysis.

Uploaded by

Mohd Mudassir Rahat
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
396 views

Fundamental Analysis: DR Saif Siddiqui

Fundamental analysis involves evaluating economic, industry, and company factors to determine a company's intrinsic value. It assumes stock prices do not always reflect real value and that in the long run, prices will reflect fundamentals. By estimating intrinsic value and finding stocks trading at a discount, fundamental analysis aims to identify profitable investment opportunities. However, determining intrinsic value and how long it will take for the market to recognize value are challenging aspects of fundamental analysis.

Uploaded by

Mohd Mudassir Rahat
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 32

Fundamental Analysis

Dr Saif Siddiqui
Fundamental Analysis
• Fundamental analysis
– the practice of evaluating the information
contained in
• economic factors (economic analysis)
• industry reports and (industry analysis)
• financial statements (company analysis)
– to determine the intrinsic value of a firm
Basic assumptions

• is that the price on the stock market does


not fully reflect a stock’s “real” value.
• in the long run, the stock market will reflect
the fundamentals.
Basic philosophy
• By focusing on a particular business, an
investor can estimate the intrinsic value
• and find opportunities where he or she can
buy at a discount.
• If all goes well, the investment will pay off
over time as the market catches up to the
fundamentals.
The big unknowns are:

• You don’t know if your estimate of intrinsic


value is correct; and
• You don’t know how long it will take for the
intrinsic value to be reflected in the
marketplace.
Criticisms of Fundamental
Analysis

• The biggest criticisms of fundamental analysis


come primarily from two groups:
– proponents of technical analysis
– believers of the efficient market hypothesis.
Fundamental Analysis versus
Technical Analysis
• Fundamentalists
– Analysts who utilize fundamental analysis
in an attempt to forecast future stock price
movements
Fundamental Analysis versus
Technical Analysis
• Technical analysis
– examination of supply and demand for
securities
– to determine trends in price movements of
stocks or financial instruments
Fundamental Analysis versus
Technical Analysis
• Technicians
– the term given to analysts who examine
stocks and financial markets using
technical analysis
Economic Analysis

• Forecasting business cycles


– to determine when to expect changes in the
business cycle,or
– the direction in which aggregate economic
activity is moving
Economic Analysis
• Business cycle
– the movement in aggregate economic
activity as measured by the gross
domestic product (GDP)
• Expansion
– increasing economic activity
• Contraction
– decreasing economic activity
Economic Analysis
• Gross Domestic Product (GDP)
– a measure of all of the goods and
services produced in the economy
during a specified time period
• Recession
– two consecutive quarters of economic
contraction, or decline, in the GDP
Business Cycles - Monetary
Policy and Fiscal Policy

• Monetary Policy
– the means by which the RBI influences
economic conditions by managing the
nation’s money supply
Business Cycles - Monetary
Policy and Fiscal Policy
• Fiscal Policy
– Government spending, which is primarily
supported by the government’s ability to tax
individuals and businesses
Business Cycles - Monetary
Policy and Fiscal Policy
• Deficit spending
– situation that occurs when the government
spends more than it collects in taxes
Industry Analysis

• Each industry has differences in terms of its


– customer base,
– market share among firms,
– industry-wide growth,
– competition,
– regulation and
– business cycles.
Industry Analysis

• Customers
– Some companies serve only a handful of
customers, , while others serve millions.
– For example, a military supplier who has 100% of
its sales with the Indian government.
– One change in government policy could potentially
wipe out all of its sales.
Industry Analysis

• Market Share
– Company's present market share can tell volumes
about the company's business.
– Market share is important because of economies
of scale.
Industry Analysis

• Industry Growth
– Examine whether the amount of customers in the
overall market will grow.
– This is crucial because without new customers, a
company has to steal market share in order to
grow.
– In some markets, there is zero or negative growth,
a factor demanding careful consideration.
Industry Analysis

• Competition
– looking at the number of competitors goes a long
way in understanding the competitive landscape for
a company.
– Industries that have limited barriers to entry and a
large number of competing firms create a difficult
operating environment for firms.
Industry Analysis

• Regulation
– Certain industries are heavily regulated due to the
importance or severity of the industry's products
and/or services.
– They can drastically affect the attractiveness of a
company for investment purposes.
Industry Analysis

• Industry life cycle


– the various phases of an industry with respect
to its growth in sales and its competitive
conditions
Industry Life Cycle

Industry
Sales Mature

Expansion
(Growth)

Introductory

Life-Cycle
Stages
Company Analysis

• Business Model
– One of the most important questions that should
be asked is: What exactly does the company do?
– This is referred to as a company's business model
– it's how a company makes money.
Company Analysis

• Competitive Advantage
– A company's long-term success is driven largely
by its ability to maintain a competitive advantage -
and keep it.
– When a company can achieve competitive
advantage, its shareholders can be well rewarded
for decades.
Company Analysis

• Management
– A company relies upon management to steer it
towards financial success.
– Even the best business model is doomed if the
leaders of the company fail to properly execute
the plan.
Company Analysis

• Past Performance
– Check and see how executives have done at other
companies in the past.
– Identify the companies they worked at in the past
and do a search on those companies and their
performance.
Company Analysis
• Financial and Information Transparency
– Sufficient transparency implies that a company's
financial releases are written in a manner that
stakeholders can follow what management is
doing and
– therefore have a clear understanding of the
company's current financial situation.
Company Analysis

• Stakeholder Rights
– This aspect of corporate governance examines
the extent that a company's policies are
benefiting stakeholder interests, notably
shareholder interests.
Company Analysis
• Financial statement analysis
Comparison to other similar firms
Forecast direction for future
Predict earnings and dividends
Risk evaluation
Investment Professionals’ Advice

 Be disciplined with your investment approach


 Know the company in which you invest
 Choose firms that are in strong financial
positions
 Stay with the investment until it no longer
satisfies your investment goals

You might also like