Fundamental Analysis

Fundamental AnalysisAbhay ChopraFundamental AnalysisA method of security valuation which involves examining the company's financials and operations, especially sales, earnings, growth potential, assets, debt, management, products, and competition.

Fundamental analysis focuses on underlying business to analyze stocks value.

The analysis attempts to ascertain whether stock is overpriced, underpriced, or priced in proportion to its market value.Approaches to equity ValuationTop Down ResearchBottom Up ResearchEconomic AnalysisGDPInflationInterest RateInternational TRADECrude Oil PricesCredit PoliciesFDIs/FIIs

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Industry AnalysisThe Term Industry refers to the filed involved in the production of goods or extraction of natural resources. The economy of the country depends on the industry it has.More Industry a country has more economically rich and stable it is.

Classification / Types of IndustriesPrimary IndustryAgriculture, farming, forestry, fishing, horticultureGenetic Industryplant nurseries, cattle rearing, poultry, cattle breedingExtractive Industrymining industry, coal mineral, oil industry, iron ore, extraction of timber and rubber from forestsManufacturing Industrytextiles, chemicals, sugar industry, paper industryConstruction Industryconstruction of buildings, bridges, roads, dams, canalsService Industryhotel industry, tourism industry, entertainment industryIntroduction StageGrowth StageMaturity StageDecline Stage

Introduction-3D TVsGrowth-Blueray discs/DVRMaturity -DVDDecline -Video cassette

Porters five forces of competitive position analysis:Supplier powerBuyer powerCompetitive rivalryThreat of substitutionThreat of new entry

Banking OverviewIn the next 5-10 years, the sector is expected to create up to two million new jobs.Two new banks have already received licences new norms will offer incentives to banks to spot bad loans and take necessary recourse to curb the practices of rogue borrowers.The size of banking assets in India totalled US$ 1.8 trillion in FY 13 and is expected to touch US$ 28.5 trillion in FY 25.Total lending and deposits increased at a compound annual growth rate (CAGR) of 22.8 per cent and 21.2 per centrevenue of Indian banks increased from US$ 11.8 billion to US$ 46.9 billion over the period 2001-2010bad loans have gone up from 1.3% in March 2009 to 3.4% in March 2013.Road Ahead:-India's banking industry could become the fifth largest banking sector globally by 2020 and the third largest by 2025focus to servicing clients and improving their technology infrastructurethe Economic Advisory Council of Prime minister expects the economic growth to rise to 6.4% from the current 5% on the back of the recent structural measures

Banking SectorSupplyLiquidity is controlled by the Liquidity is controlled by the Reserve Bank of India (RBI).

DemandIndia is a growing economy and demand for credit is high though it could be cyclical.

Barriers to entryLicensing requirement, investment in technology and branch network, capital and regulatory requirements.Bargaining power of suppliersHigh during periods of tight liquidity. Trade unions in public sector banks Depositors may invest elsewhere if interest rates fall.Bargaining power of customersFor good creditworthy borrowers bargaining power is high due to the availability of large number of banksCompetitionHigh- There are public sector banks, private sector and foreign banks along with non banking finance companies competing in similar business segments. Plus the RBI is all set to issue new banking licenses soon.

Auto OverviewIndustry accounts for 22 per cent of the country's manufacturing gross domestic product (GDP)seventh-largest in the world with an average annual production of 17.5 million vehicles, of which 2.3 million are exported.FDI) inflows into the Indian automobile industry during the period April 2000 -May 2014 was recorded at US$ 9,885.21 millionPassenger car growth at 8-9%Commercial Vehicles at 5-6 %

Automobile IndustrySupplyThe Indian automobile market has some amount of excess capacity.DemandLargely cyclical in nature and dependent upon economic growth and per capita income. Seasonality is also a vital factor.Barriers to entryHigh capital costs, technology, distribution network, and availability of auto components.Bargaining power of suppliersLow, due to stiff competition.Bargaining power of customersVery high, due to availability of options.CompetitionHigh. Expected to increase even further.

Financial StatementFinancial statement analysis is an evaluative method of determining the past, current and projected performance of a company.

Analyzing Financial Statements:-Comparative StatementsCommon Size StatementsTrend RatiosRatio Analysis

Ratio Analysis

Earning Per share

=net profit after perf dividend/no of equity share

Price Earning Ratio:-=Market value per equity share/EPSNon Financial AspectsBusiness ModelCompetitive AdvantageManagementCorporate Governance

The Major StatementsThe Balance SheetThe balance sheet represents a record of a company's assets, liabilities and equity at a particular point in time. The balance sheet is named by the fact that a business's financial structure balances in the following manner:The Income StatementWhile the balance sheet takes a snapshot approach in examining a business, the income statement measures a company's performance over a specific time frame. Technically, you could have a balance sheet for a month or even a day, but you'll only see public companies report quarterly and annually.

Statement of Cash FlowsThe statement of cash flows represents a record of a business' cash inflows and outflows over a period of time. Typically, a statement of cash flows focuses on the following cash-related activities:Operating Cash Flow(OCF): Cash generated from day-to-daybusinessoperations Cash from investing (CFI): Cash used for investing in assets, as well as the proceeds from the sale of other businesses, equipment or long-term assets Cash from financing (CFF): Cash paid or received from the issuing and borrowing of funds