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Fundamental Analysis

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Introduction

The fundamental school of thoughtappraised the intrinsic value ofshares through

•

Economic Analysis• Industry Analysis• Company Analysis

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Economic Analysis

•

GDP (Gross domestic Product)measures the economy s total output of

goods and services• !avings and investment• In"ation• Interest #ate

high interest rate reduces P$ of cash"o%s&

thus stoc' values• udget De cit

large de cit means more *orro%ing&%hich

implies higher interest rate+

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Cont++

• Ta, !tructure• alance of Payment• -onsoon and Agriculture•

Infrastructure Facilities• Demographic Factors

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Industry Analysis• Each industry is di.erent from the

other+ These industries can *eclassi ed on the *asis of the*usiness cycle+

• Gro%th industry• Cyclical industry• Defensive industry

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usiness Cycles•

*usiness cycles/ pattern of recession andrecovery• pea'/ the end of e,pansion and start of

recession• trough/ the *ottom of the recession• stoc' returns are decreasing %hen at

pea' and increasing at trough•

cyclical industries/ do %ell in e,pansionaryperiods *ut poorly in recession& e+g+& dura*legoods such as automo*ile and %ash machines

• defensive industries/ little sensitive to*usiness cycles& such food

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Industry Analysis Cont++•

Industry 0ife Cycle 1 Pioneering stage 1 #apid gro%th stage

1 maturity and sta*ilisation stage 1 Declining !tage

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2ther Factors to *e analy3ed• Gro%th of the industry• Cost structure and pro ta*ility• 4ature of the product• 4ature of competition• Government policy• 0a*our• #esearch and development• Pollution standards• !52T analysis

Industry Analysis Cont++

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Company Analysis

Factors !harevalueCompetitive edge

EarningsCapital structure-anagement2perating e6ciencyFinancial performance

7istoric price of stoc'P8E ratioEconomic condition!toc' mar'et condition

Futureprice

Presentprice

Factors That A.ect Present And Future $alues

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• Competitive edge of the company• -ar'et share• Gro%th of sales• !ta*ility of sales• !ales forecast• Earnings of the company•

Capital structure• -anagement• 2perating e.eiciency

Company Analysis cont++

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Financial analysis•

alance sheet• Pro t and loss statement analysis• Analysis of nancial statements

1 comparative nancial statement1 trend analysis

1 common si3e statements

1 fund "o% analysis 1 cash "o% statement 1 ratio anaysis

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Than' you