Fundamental Analysis on Stock Market

Subject:- Fundamental Analysis of Stock Market

U must be wandering why I being an engineer writing about the Stock Market. The thing
is we all will earn money sooner or later but most of us don’t know how to manage it.
There are various avenues of managing money . I will concentrate only on equity market
as is I have deep interest in it and find it fascinating.

What I am going to tell u is about fundamental analysis of stock market.

FUNDAMENTAL ANALYSIS: -

Fundamental analysis is analysis on basis on fundamentals of stock and economy as a

whole. U can do this at your home and cover the risk of losing money on buying on
rumors.

It is a 3-stage process: -

1. Economy analysis
2. Industry analysis
3. Company analysis
Fundamental Analysis on Stock Market

ECONOMY ANALYIS AND THEIR IMPACT ON STOCK MARKET

INDICATOR FAVAROUBALE IMPACT UNFAVOURABLE

IMPACT

1.GNP HIGH GROWTH RATE SLOW GROWTH RATE

2.EMPLOYMENT FULL OR ALMOST FULL UNDEREMPLOYMENT

3.INTEREST RATES LOW HIGH
4.TAX RATE LOW HIGH
5.FOREIGN HIGH LOW
EXCHANGE
POSITION
6.BALANCE OF POSITIVE NEGATIVE
TRADE(EXPORTS-
IMPORTS)

7.RAIN SUFFICIENT LESS

8.INFLATION LOW HIGH
9.DEFICIT LOW HIGH
FINANCING
10.AGRICULTURAL HIGH LOW
PRODUCTION

11.INDUSTRIAL HIGH LOW

PRODUCTION

12.FREIGHT HIGH LOW

MOVEMENT OF
RAILWAY

13.NEW HOUSE HIGH LOW

CONSTRUCTION
Fundamental Analysis on Stock Market

INDUSTRY ANALYSIS :-

WHEN INVESTING STOCKS IN A SPECIFIC INDUSTY KEEP IN MIND:

1. INVEST IN INDUSTRY AT GROWTH STAGE.

2. SAFER TO INVEST IN INDUSTRY NOT SUBJECTED TO GOVERNMENT

CONTROLS.

3. CYLICAL INDUSTRIES SHOULD BE AVOIDED UNLESS INVESTING AT THEM

AT GROWTH STAGE (CYCLICAL INDUSTRIES ARE THOSE COMPANIES
WHICH GO THROUGH A CYCLE OF LOW AND HIGH e.g. STEEL INDUSTRY
DUE TO A ROBUST DEMAND FROM CHINA IS GOING THROUGH AND
UPWARD CYCLE WHEN THIS DEMAND PERISHES THE STEEL PRICES WILL
GET DOWN VERY QUICLY AND IN GREAT AMOUNT ).

4. SEE FOR INDUSTRIES EXEMPTED FROM TAXATION.

Fundamental Analysis on Stock Market

COMPANY ANALYSIS(NON FINANCIAL AND FINANCIAL):-

NON FINANCIAL ANALYSIS

SWOT ANALYSIS

STRENGTHS

1. LATEST TECHNOLOGY
2. LOWEST DELIVERED COST
3. ESTABLISHED PRODUCTS
4. COMMITED MAN POWER
5. ADVANTAGEOUS LOCATION
6. STRONG FINANCES
7. WELL KNOWN BRAND NAME

WEAKNESSES

1. LOOSE CONTROLS
2. UNSTRAINED LABOUR FORCE
3. STRAINED CASH FLOWS
4. POOR PRODUCT QUALITY
5. POOR PUBLIC IMAGE

OPPORTUNITIES

1.GROWING DOMESTIC DEMAND

2.EXPANDING EXPORT MARKETS
3.CHEAP LABOUR
4.BOOMING CAPITAL MARKET
5.LOW INTEREST RATES

THREATS

1. PRICE WAR
2. INTENSIVE COMPETITIVE SUPPLIER
3. INFRASTRUCTURE BOTTLENECKS
4. POWER CUTS
Fundamental Analysis on Stock Market

FINANCIAL ANALYSIS :-

1. EPS(EARNING PER SHARE) = PROFIT AFTER TAX/NO. OF EQUITY SHARES

HIGHER EPS BETTER FOR INVESTING

2. P/E = MARKET PRICE OF SHARE / EPS

LOWER P/E BETTER FOR INVESTING

3. BOOK VALUE=ASSET BACKING AVAILABLE PER SHARE

= SHAREHOLDER FUNDS / NO. OF EQUITY SHARES

HIGHER BOOK VALUE BETTER FOR INVESTING.

4. CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

HIGHER CURRENT RATIO BETTER FOR INVESTING (PREFERABLY>=1)

5. QUICK RATIO = CASH AND CASH EQUIVALENT / CURRENT LIABILITIES

HIGHER QUICK RATIO BETTER FOR INVESTING.

6. DEBT-EQUITY RATIO = (LOANS/SHARE HOLDER FUNDS)*100

LOWER RATIO PREFERRED

7. GROSS MARGIN = (SALES-COST OF GOODS SOLD)/SALES *100

HIGHER MARGIN PREFERRED

8. RETURN ON NET WORTH = (PROFIT AFTER TAX/SHAREHOLDER

FUNDS)*100

HIGHER RETURN PREFERRED

9. DIVIDEND COVER = EPS/DIVIDEND PER SHARE

HIGHER COVER PREFERRED

10.PROFITABILITY OF SALES = (PROFIT AFTER TAX/SALES)*100

HIGHER PROFIT PREFERRED

11.NET PROFIT MARGIN = ((NET INCOME- TAX)/SALES)*100

HIGHER MARGIN PREFERRED.

Fundamental Analysis on Stock Market

FINALLY 9 COMMANDENTS U SHOULD NEVER FORGET

1. DO NOT SPECULATE.

2. DO NOT INVEST IN NEW ISSUES UNLESS VERY VERY GOOD

3. DON'T PUT ALL YOUR BAGS IN ONE BASKET(DONT BUY A SHARE OF ,

SINGLE COMPANY ONLY)

4. LIMIT NUMBER OF SCRIPS TO (5-10)

5. INVEST FOR LONG TERM

6. INVEST IN REAL VALUE

7. DISINVEST BEFORE COMPANY BECOMES A SUNSET INDUSTRY

8. DONT MARRY YOUR STOCKS

9. SET A LIMIT TO YOUR GREED

WITH THE KNOWLEDGE OF FUNDAMENTAL ANALYSIS U ARE READY TO

ENTER THE WORLD OF BULLS AND BEARS THE WORLD WHERE U CAN
BECOME MILLIONAIRE AND BILLIONAIRE IN VERY SHORT TIME.HAPPY
INVESTING.

PLEASE NOTE THAT THIS IS AN INTRODUCTORY INFORMATION ON THIS

SUBJECT. THIS IS A VERY VAST TOPIC. SO PLEASE DON’T CONSIDER IT A
BIBLE ON STOCK MARKET. THIS THING IS WRITTEN CONSIDERING U ARE A
NOVICE AND U WILL PROBABLY NEED SOME BOOKS ON STOCK MARKET
TO SUPPLEMENT THIS INFORMATION. ALSO THERE ARE MANY ECONOMIC
JARGONS IN THIS INFORMATION. SO WHEN IN DOUBT CONSULT A GOOD
DICTIONARY ON ECONOMICS.