INTRODUCTION

Fundamental analysis:
Fundamental analysis is the examination of the underlying forces that affect the well being of the economy,
industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future
price movements. At the company level, fundamental analysis may involve examination of financial data,
management, business concept and competition. At the industry level, there might be an examination of
supply and demand forces for the products offered. For the national economy, fundamental analysis might
focus on economic data to assess the present and future growth of the economy. To forecast future stock
prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current
fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts
believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair
value. Fundamentalists do not need the advice of the random walkers and believe that markets are weak form
efficient. By believing that prices do not accurately reflect all available information, fundamental analysts
look to capitalize on perceived price discrepancies. For finding the intrinsic value, fundamental analysis uses
top to bottom approach which is also called as E-I-C (Economy, Industry and Company analysis) approach.
Firstly it studies the macro economy i.e., overall health of economy as a whole and industry trends,
competitors performance. After that the next step is to examine the financial data of the company. If this
intrinsic value of the stock is more than its current market price, investor would prefer to purchase the stock
because he believes that the stock will perform better in future and it will move towards intrinsic value. If
intrinsic value of the stock is less than the market price, then investor would prefer to sell the stock because he
believes that the price of the stock will fall in future and it will come near to the intrinsic value.

Strengths of fundamental analysis:

1. Long-term trends:
Fundamental analysis is good for long term investments based on long-term trends. The ability to identify and
predict long-term economic, demographic, technological or consumer trends can benefit investors and helps in
picking the right industry groups or companies.

2. Value Spotting:
Sound fundamental analysis will help identify companies that represent a good value. Some of the most
legendary investors think for long-term and value. Fundamental analysis can help uncover the companies with
valuable assets, a strong balance sheet, stable earnings, and staying power

3. Business Acumen:
One of the most obvious, but less tangible rewards of fundamental analysis is the development of a thorough
understanding of the business. After such painstaking research and analysis, an investor will be familiar with
the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent
drivers of equity prices. A good understanding can help investors avoid companies that are prone to shortfalls
and identify those that continue to deliver.

4. Value Drivers:
In addition to understanding the business, fundamental analysis allows investors to develop an understanding
of the key value drivers within the company. A stocks price is heavily influenced by the industry group. By
studying these groups, investors can better position themselves to identify opportunities that are high-risk
(tech), low-risk (utilities), growth oriented (computer), value driven (oil), non cyclical (consumer staples),
cyclical (transportation) etc.

Weakness of fundamental analysis:

1. Time Constraints:
Fundamental analysis may offer excellent insights, but it can be extraordinarily time consuming. Timeconsuming models often produce valuations that are contradictory to the current price.

2. Industry/Company Specific:
Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a
different technique and model is required for different industries and different companies. This can get quite
time consuming and limit the amount of research that can be performed.

3. Subjectivity:
Fair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the
ultimate valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a
base-case valuation, a best-case valuation and a worst-case valuation. However, even on a worst case, most
models are almost always bullish, the only question is how much so.

4. Analyst Bias:
The majority of the information that goes into the analysis comes from the company itself. Companies employ
investor relations managers specifically to handle the analyst community and release information

TITLE: VALUATION OF FIRM BY FUNDAMENTAL ANALYSIS

Need of Study:
Every asset, financial as well as real, has value. The key to successfully investing in and managing
these assets lies in understanding not only what the value is, but the sources of the value. Any asset can be
valued, but some assets are easier to value than others, and the details of the valuation will vary from case to
case. Thus, the valuation of a share of a real estate property will require different information and follow a
different format from the valuation of a publicly traded stock..
A postulate of sound investing is that an investor does not pay more for asset than its worth. This statement
may seem logical and obvious as financial assets are acquired for the cash flows expected from owning them,
which implies that the price that is paid for any asset should reflect the cash flows it is expected to generate.
The study for fundamental analysis provides a logical and systematic approach to estimate future profits. This
study helps to know that the companys performance depends not only on its own efforts but also on the
industry and economic factors. It helps an analyst to study the fundamental factors affecting the performance
of different industries. Also industry analysis helps to evaluate the relative strength and weaknesses of
particular company

Objectives of study:
To understand the macroeconomic variables which will impact on the companys progress.
To study the various trends, opportunities, challenges of the industry in which the company operates.
To understand the various policies of the company those have impact on the financial performance of
the company.

To understand the various investment valuation models that can be used.

To select the appropriate model that suits the stock.
Find the intrinsic value of the stock and compare with market value of the study.
To recommend whether to buy, hold or sell the stock based on the analysis.

Research Methodology:
Secondary data:
The secondary data used for the purpose of finding intrinsic value is taken from the companys financial
statements i.e. balance sheet, income statement and cash flows statements and also from the bse stock
exchange for obtaining stock values of market as well as the companies stock prices.

Sample unit:
The sample unit: An FMCG Company Colgate Palmolive ltd

Sample method:
The sample method used for fundamental analysis is Non-probabilistic judgment sampling.

Scope of study:
The study basically tries to identify the intrinsic value of the firm by using the published financial details
of the company. The study is restricted to one particular company in the sector. It helps in studying the
financial position of the companys stock and also helps to attain a decision whether to buy, sell or hold
the stock

Limitations of the study:

The study was confined only to one particular sector.

The study was more confined with secondary data.

The study assumes no changes in the tax rates in the country.

The study was done for a short period of time, which might not hold true over a long period of time.

CHAPTER SCHEME

Chapter: 1 THEORITICAL BACKGROUND OF THE STUDY

This chapter mainly deals with secondary data collected to support the study and the reasons to
problem of study.
Chapter: 2 RESEARCH DESIGN
A research design serves as a bridge between what has been done in the conduct of study to realize the
specified objectives. It is an outline of the projects working.
Chapter: 3 PROFILES
This chapter includes the profile of the industry as well as the company in which the study is
conducted. This is also tries to deal with trends and prospects in the industry as well as the company.
Chapter: 4 ANALYSES AND INTERPRETATION
In this chapter using the analyzed data we have tried to find out the intrinsic value of the company.
Hypothesis test is done to find whether the value of the company is under or over valued.
Chapter: 5 Summary of Findings, conclusions and Suggestions
In this chapter we will actually include all that we have analyzed and what has been found. Finally
conclude checking whether the objective of the study has been achieved or not.