Introduction Fundamental Analysis (1 BIC Frame Work Global Economy Domestic Beonomy = Business Cycles Industry Analysis Company Analysis ee = Valuation of Securities Valuation of Bonds Debentures and Preference Shares Equity Shares No Growth Rate Normal Growth Rate Normal Growth Rato pa 0 Super— oes Fundamental analysis is a method used by investors to evaluate securities by examining | the intrinsic value of a company. It focuses on analyzing various factors such as financia, statements, economic indicators, industry trends, and management quality to determine the | true worth of a stock or security. The primary goal of fundamental analysis is to i undervalued or overvalued assets in the market. By understanding the underlying factors that (Adrive a company's performance, investors can make more informed decisions about buying, | selling, or holding a particular investment. Fundamental analysis include examining a debt levels. Analysts also assess the competi macroeconomic factors that may impact the company’s requires a comprehensive understanding of financi statement, balance sheet, and cash flow statement. Investors often use financial ratios such ag price-to-eamnings (PIE), price-to-book (PIB), and debtto-equity (D/E) ratios to gauge a company’s financial health and valuation. Fundamental analysis provides valuable insights into a company's long-term prospects, it is not without limitations. External factors such as market sentiment, geopolitical events, and regulatory changes can influence stock prices, sometimes overriding fundamental factors in the short term. Investors practicing fundamental analysis typically take a long-term perspective, looking beyond short-term market fluctuations to assess the underlying fundamentals of a company. This approach aligns with the principles of value investing, popularized by investors like Warren Buffett, who emphasize buying quality companies at attractive prices and holding them for the jong term. Fundamental analysis is not limited to equities but can be applied to various asset classes, including bonds, commodities, and currencies. In each case, analysts evaluate relevant factors specific to the asset class to determine its intrinsic value and potential for future company's revenue, earnings, cash flow, and itive landscape, market demand, and 's future prospects. Fundamental analysis jal statements, including the income appreciation. The process of fundamental analysis requires thorough research, critical thinking, and financial acumen. Analysts must stay updated on industry trends, economic developments, and company-specific news to make informed judgments about the investment potential of a particular security. Fundamental analysis forms the foundation of many investment strategies, successful investors often combine it with other approaches, such as technical analysis oF qualitative assessments of management teams and industry dynamics. By integrating multiple perspectives, investors can enhance their decision-making process and better manage investment risk. | “4. WHATIS FUNDAMENTAL ANALYSIS? Fundamental analysis is a study of certain factors, such as financial statements, external | factors, news, events and trends in the industry to determine the true value of a stock. Usually, it takes some time for the true stock value to change, depending on these factors. This method can help you determine the value of a company and its potential in the future. It considers micro-and macroeconomic factors. These values may differ from the value at which the stock is being traded in the market.ail i " .! pros, During oe also play a major role in determining the stock values and ean aes ic depression, prices can fall drastically. On the contrary, when osive gains from thot i ; prices may rise exponentially, causing the investors to make mS along with investments. Industry trends can also affect the prices of certain ena eee a = values. For example, if people become more environmentally commen may sullen and the re motor companies that produce fuel-driven - Sty WHY FUNDAMENTAL ANALYSIS? Fundamental analysis answers the following questions: 4, _ Is the company’s revenue growing? {s it actually making a profit? \s it in a position strong-enough to outrun its competitors in the future? |s it able to repay its debts? Is management trying to "cook the books"? semen saree cag To conduct a company’s stock valuation and predict its probable. price evolution. 1 2. Tomake a projection on its business performance. 3, Toevaluate its management and make internal business decisions. 4 open ae To calculate its risk. 4. Fundamental Analysis is used to evaluate a lot of information about the past performance and the expected future performance of companies, industries and the economy as a whole before taking the investment decision. 2. Fundamental analysis is really a logical and systematic approach to estimating the future dividends and share price. Fundamental analysis is performed on historical and present data, but with the goal of making financial forecasts. 3. Fundamental analysis is a method used for evaluating a security or asset by attempting to measure its intrinsic value by examining related economic, financial and other qualitative and quantitative factors. 4. Fundamental analysts atter including macroeconomic fa individually specific factors. is based on an in-depth and all- around study of the underlying 5. The fundamental approach i forces of the economy, conducted to provide data that can be used to forecast future prices and market developments. mpt to study everything that can affect the security's value, ctors (like the overall economy and industry conditions) andFundamental analysis can be composed of many different aspects: the analysis of the 6. economy as the whole, the analysis of an industry or that of an individual company, A combination of the data is used to establish the true current value of the underlying asset, to| determine whether they are over or under-valued and to predict the future value of the | underlying asset based on this information. 7. Ithelps an investor obtain information about the overall state of the market, attractiveness | and state of a specific security as compared to other securities. 5 tye JAMENTAL ANALYSIS) company: If are considering a ‘certain company for long-term, investment, first try to study it in as much detail as possible. Go through the website, leam | about its product, market, how it has been performing, its future goals and past decisions, Once you know as much as possible about the business, are going to be in a better position to evaluate the other variables. 2. Read the financial reports: After gaining a full understanding of the company, may look into the financial reports, such as the balance sheets, profit-and-loss statements, operating costs, cash flow, revenue and expenses. Check whether the net profit has been on the rise | in the past five years. If this is so, then it is a positive sign. May also calculate the compounded annual growth rate (CAGR). Can find financial reports of a company in trading and investing platforms online. Check the debt: Debt can impact the growth potential and performance of a company negatively. It is advisable to refrain from investing in companies that have high debt, as this | can affect the returns. The ideal debt-equity ratio is less than one. Look for a company with this debt-equity ratio for safer investments. 4. Study the competitors: Competition is an important factor in determining whether a company can scale and grow as effectively as it aims to. If the competitors have a better reputation in the market and produce better quality products, the chances of the company succeeding can be less. It is better to go with a company that has already established itsef as a leader in the market and that enjoys a better reputation than its competitors. 5. Analyse the future prospects: Some products are seasonal and may even lose their) significance with time. Others can be evergreen products or they may have a use for customers regularly in the foreseeable future. Analyse these aspects to see if the company | has the potential to grow and sustain itself in the long run. Diminishing product values resulls | in decreasing stock values. 6. Review all aspects periodically: Micro-and macroeconomic changes can affect the prices | and valuation of companies. The occurrence of new events and the innovation of technolog! can make certain products obsolete or enhance their existing value. This makes it impor | to remain aware of the current happenings, read industry-relevant news and follow the company closely. This can help plan to hold or sell investments.LANALYSIS Cute NOAMENT ae . fu ag unquantifiable aspects of an ae ndamental analysis focus more on the subjective and quantifiable data, it studies factore fe “termine its stock value. Rather than analysing the or experienced the man, ie ne brand value, empl isfacti i ! ABEMENL is, customer hoe ae, TPlave® satisfaction, how efficient it may not Possible to mone, ack and other details, ia ure th be overall position and Potential of ree factors in numeric. terms, but they can indicate the may not give the most accur rate eae in the market. Using qualitative analysis alone better strategy, ction. Combining it with quantitative analysis may be a Quantitative ana to estimate the v; lysis: A th . ie ci aeeae analysis considers the quantitative or numerical factors calculations. Quantitative ck. It is primarily based on statistics and mathematical quantitative data, statisties sia 'S useful in almost any field that comprises any kind of behavioural predictions. Even qo nat analysts can study to draw conclusions or make : ° Ven governments and banks employ quantitative analysis to make informed economic and financial decisions. ev ™ Top-down approach: The to, variables that may influence gross domestic product (GDI lualitay p-down approach begins by looking at the broader economic the prices or values of stocks. These may include the current )P), environmental or geopolitical events. These variables can affect the monetary conditions of the entire economy of a country at large, rather than just a particular sector, company or business. For instance, a natural calamity can hinder the production of goods or slow it down. If the government introduces new Policies to support and encourage entrepreneurship, it can have a positive effect by allowing new businesses to continue operations. After considering the macroeconomic variables, the analyst may scrutinise the specific company’s charts, data or other factors that help predict stock prices. They may combine qualitative and quantitative analysis to reach a more accurate conclusion regarding its value. When there are overbearing macroeconomic variables, it is ideal to use the top-down approach. Bottom-up approach: The bottom-up approach is the exact opposite of the top-down approach. It starts by studying the specific details and internal factors associated with the company or business. The microeconomic variables have precedence over the macroeconomic ones. These microeconomic variables may include customer base and satisfaction, qualified human resources, suppliers and distribution channels, palesvas investors and publicity. For example, customers play a crucial role and defining the ee sre of a business. If there is enough demand or customers for a product or service, pana succes ful indicator of the future prospects of a business. If there is Rese Le also be el the demand in the market or the number of competitors low competition, it might metre ay mean thal there is a huge market for the product, but ree ere ig a sufficient supply of the product in the market, making it it can also mean thal the market. difficult for a new or a lesser-known brand to penetrateEarnings per share: Eamings per share (EPS) refers to a company's earings and the | number of shares they own. By dividing the net income of an investment by the total numbey of outstanding shares, an investor can learn about the company's overall performance. 2. Price to sales ratio: Price to sales ratio refers to the price of products in correlation with the number of sales. This helps investors better understand how much the share price increases, in revenue. Price to earnings ratio: The price to earnings ratio is the value of a company Using measurements from current share prices and earnings per share. By dividing the Current sales prices of shares with the eamings per share, investors can learn more about the intrinsic value of an investment. Price to book ratio: The price to book ratio is the comparison of a company's market value to its book value, which is the amount of equity that's available to shareholders. You can, calculate this by dividing the last clo: price of an investment by its book value. Return on equity: Return on equity refers to a measurement of financial performance. An investor can calculate the retum on equity by dividing the company's net income by shareholder equity. aaah ividend payout ratio: The dividend Payout ratio refers to the total value of dividends that a company pays to its shareholders in relation to the net income of the company. This calculation provides an investor with valuable information, including the company's net income and how much they pay their investors. Trend analysis: Trend analysis is the consideration of busine the trend of growth or profits over a specific period. 8. Future projections: A fundamental analysis mat future revenue includes an evaluation of the previ to five-year span. less trends. This may include y also include future projections. Predicting ious performance of investments over a two- 9. Corporate governance : Corporate governance refers may affect the success of the business. It includes an e1 and transparency in new policies. to business and federal Policies that valuation of compliance requirements 10. Ratio analysis: Ratio analysis is the consideration of the liquidity of a business. By comparing the balance sheet and income statements, analysts can predict a business’ equity. «FUNDAMENTAL ANALYSIS THUS INVOLVES 3 STEPS/EIC FRAME WORK "| The analysis is a 3 layer analysis wherein the analysis of economy, industry and company 'S carried out. The logic behind 3 layer is that the Performance of the company depends on the Performance of the industry and economy as a whole. In the era of the globalization we may add one more layer to the diagram to represent the international economy.Company Analysis Industry Analysis Economic Analysis The global economy refers to the interconnected worldwide economic activities that take place between multiple countries. These economic activities can have either a positive or negative impact on the countries involved, The global economy refers to the interconnected network of economic activities that spans across countries, transcending national borders. This intricate web of trade, investment, and financial transactions forms the foundation of international economic relations. At its core, the global economy signifies the interdependence of nations in terms of the production, exchange, and consumption of goods and services. In this multifaceted system, countries engage in a complex dance of imports and exports, shaping the dynamics of ‘supply and demand on a global scale. The global economy is international trade, where countries exchange goods and services to meet their respective needs and capitalize on comparative advantages. This exchange is A7acilitated by @ network of treaties, agreements, and organizations that regulate and promote cross-border commerce. The movement of capital across nations is another crucial component, a8 investors seek opportunities beyond their home countries, contributing to the flow of fesources and the development of diverse economies. The global economy is influenced by a web of interconnected financial markets. Stock exchanges, currency markets, and other financial instruments connect nations, impacting everything from interest rates to investment flows. Economic events in one part of the world can tigger ripple effects globally, illustrating the intricate and sometimes delicate nature of the Global economic system. In recent decades, technological advancements and increased communication have accelerated the pace of globalization, further intertwining the fates of nations. However, Challenges such as economic inequality, geopolitical tensions, and environmental concems Underscore the need for coordinated efforts to ensure the Sustainability and inclusivity of the_— as global economy. As nations navigate this interconnected landscape, they must strike a between pursuing their individual interests and recognizing the shared responsibility for the wey, being of the global economic system. a) Globalisation Globalisation describes a process by which national and regional economies, and cultures have become integrated through the global network of trade, communication, immigration, and transportation. These developments led to the advent of the global economy, Due to the global economy and globalisation, domestic economies have become cohesive, leading to an improvement in their performances. b) International trade International trade is considered to be an impact of globalisation. It refers to the exchange of goods and services between different countries, and it has also helped countries to specialise in products which they have a comparative advantage in. This is an economic theory that refers to an economy's ability to produce goods and services at a lower opportunity cost than its trade partners. ¢) International finance Money can be transferred at a faster rate between countries compared to goods, services, and people; making international finance one of the primary features of a global economy. International finance consists of topics like currency exchange rates and monetary policy. d) Global investment This refers to an investment strategy that is not constrained by geographical boundaries. Global investment mainly takes place via foreign direct investment (FDI). _. BENEFITS OF GLOBAL ECONOMY | 1. Increased Trade Opportunities: The global economy fosters trade between nations, Providing access to a wider range of goods and services. This allows countries to specialize in producing what they are most efficient at, leading to greater efficiency and productivity overall. 2. Economic Growth: Globalization encourages competition and innovation, driving economic growth. As companies expand internationally, they create jobs, invest in new technologies, and stimulate economic development both domestically and abroad. 3. Reduced Poverty: Access to global markets can lift people out of poverty by creating employment opportunities, increasing incomes, and improving living standards. Developing countries can benefit from foreign investment and trade partnerships, which can help them develop their economies and improve infrastructure. 4. Cultural Exchange and Understanding: Globalization promotes cultural exchange and understanding between nations. As people and goods move across borders, they bringthem their cultures, ideas, and , , : versity, anal appreciation. Perspectives, fostering greater cultural diversity Access to Capital ang Res. technology, and resource: pee and facilitates innovation, ultimately driving economic growth and ‘Ources: Globalization enables businesses to access capital, S from around the world. This allows for greater efficiency in Enhanced Access to Information and Technology: The interconnectedness of the global economy facilitates the exchange of int bl . formation and technology across borders. This enables countries to adopt best practices, improve efficiency, and stay competitive in a rapidly evolving global marketplace. Improved Standards of Living: As countries Participate in the global economy, they can benefit from economies of scale, increased competition, and access to a wider variety of goods and services at lower Prices. This can lead to improvements in the standard of living for consumers around the world, Environmental Benefits: Globalization can promote environmental sustainability through the sharing of knowledge, technologies, and resources aimed at addressing global challenges such as climate change and Pollution. International cooperation and agreements can lead to more effective environmental Policies and initiatives. ean GES OF GLOBALECONOMY == 4 DISADVA Increased Economic Inequality: While the global economy can create wealth and opportunity, it can also exacerbate economic inequality. Certain regions and groups may benefit disproportionately, leading to widening income and wealth gaps both within and between countries. Vulnerability to Economic Shocks: The interconnectedness of the global economy means that economic shocks in one part of the world can quickly spread to others. Financial crises, natural disasters, or geopolitical conflicts in one region can have ripple effects, causing instability and uncertainty globally. Loss of Jobs and Wage Pressures: Globalization can lead to the outsourcing of jobs to countries with lower labor costs, resulting in job losses and wage pressures in high-cost regions. Workers in industries vulnerable to international competition may face challenges in finding employment or may be forced to accept lower wages. Dependency on Global Supply Chains: Reliance on global supply chains can make economies vulnerable to disruptions. Events such as trade disputes, transportation bottlenecks, or pandemics can disrupt the flow of goods and services, leading to shortages, price fluctuations, and economic dislocation. Environmental Degradation: The pursuit of economic growth in a globalized world can put Pressure on natural resources and ecosystems. Increased production and consumption can lead to environmental degradation, including deforestation, pollution, and climate change, with consequences that extend beyond national borders.oa Ge th as 6. _ Loss of Cultural Identity: Globalization can homogenize cultures and lead to the OFO8I6n gy local traditions and identities. The spread of Western values and consumer culture, facilitate by global media and advertising, can undermine indigenous cultures and languages, leading to concems about cultural imperialism and loss of diversity. | 7. Risk of Social Unrest and Political Instability: Economic disparities and perceivey injustices associated with globalization can fuel social unrest and political ‘i Inequality, job insecurity, and disenchantment with the political establishment can contribujg to populist movements, protectionism, and anti-globalization sentiments. 8, Undermining of National Sovereignty: Increased economic integration can challenge the sovereignty of nation-states as intemational trade agreements and institutions exert influence over domestic policies. Countries may find themselves constrained in their ability to regulate markets, protect workers’ rights, or pursue social and environmental objectives. — gate sa ae aS TER a EERE ComesncEcololy Se The domestic economy refers to the economic activities that take place within the borders of a specific country, encapsulating all production, consumption, and exchange of goods ang services occurring internally. This concept is fundamental to understanding a nation's economic health and performance. The domestic economy is often measured by indicators such as gross domestic product (GDP), unemployment rates, and inflation, providing a snapshot of the overall economic well-being of a country. The domestic economy encompasses a wide range of sectors, including agriculture, manufacturing, services, and more. The production of goods and services within a county contributes to its economic output and plays a crucial role in shaping the standard of living for its citizens. Policies related to taxation, government spending, and regulatory frameworks directly impact the dynamics of the domestic economy, influencing factors such as investment, employment, and business operations. Employment is a key dimension of the domestic economy, as it reflects the capacity of a country to provide livelihoods for its population. Low unemployment rates are generally indicative of a healthy domestic economy, while high unemployment may signal economic challenges. Additionally, the domestic economy is influenced by consumer spending patterns, which, in tum, are affected by factors such as income levels, inflation, and consumer confidence. The financial system of a country, including its banking sector and monetary policies, is integral to the functioning of the domestic economy. Monetary authorities often use tools like interest rates to regulate economic activities, managing inflation and encouraging or slowing | down borrowing and spending. The domestic economy is the economic ecosystem confined within a nation's borders, encompassing the production, distribution, and consumption of goods and services. It serves 4 the foundation for a country's overall economic performance and is shaped by a myriad of factors, including government policies, consumer behavior, and the regulatory environment Understanding the dynamics of the domestic economy is crucial for Policymakers, businesses, and citizens alike in navigating and contributing to the economic well-being of a nation. |ee OF DOMESTIC ECONOMY)" Control Over Economic Policies. control over economic policies and |n @ domestic economy, policymakers have greater the county. This allows for more n on tailored to the specific needs and priorities of lexibilit be monetary policies, and trade pes sd in implementing measures such as fiscal policies, sojectves address domestic challenges and achieve national Protection of Domestic Industries: A domest Provide protectios industis through tariffs, subsidies, and other tec eon : a ther trade barriers, safeguarding them from foreign competition. This protectioni 2 ees nist approach can help nurture and support fledgling industries, can and preserve strategic sectors vital for national security and economic 3, Job Creation and Employment stability: Focusing on domestic production and consumption can contribute to job creation and employment stability within the country. By prioritizing domestic industries and businesses, governments can ensure that jobs are retained and that workers have access to stable ‘employment opportunities, reducing the risk of unemployment and social unrest. Promotion of National Identity and Culture: A domestic economy fosters the promotion and preservation of national identity, culture, and heritage. By supporting local businesses, artisans, and cultural producers, countries can celebrate and showcase their unique traditions, customs, and creativity, enriching the cultural fabric of society and enhancing national pride. 4, Strengthening of Supply Chains and Resilience: Investing in domestic supply chains and production networks enhances the resilience of the economy against external shocks and disruptions. By reducing reliance on imported goods and services, countries can mitigate the risks associated with global supply chain vulnerabilities, ensuring a more stable and self- sufficient economy. 6 Support for Small and Medium-sized Enterprises (SMEs): A domestic economy provides opportunities for the growth and success of small and medium-sized enterprises (SMEs). Governments can implement policies and programs to support SMEs, such as access to financing, business development services, and regulatory simplification, fostering entrepreneurship, innovation, and economic diversification. Environmental Sustainability: Focusing on domestic production can contribute to environmental sustainability by reducing the carbon footprint associated with long-distance transportation and international trade. By promoting local sourcing and consumption, countries can minimize energy consumption, greenhouse gas emissions, and environmental degradation, supporting efforts to combat climate change and protect natural resources. 10 DISADVANTAGES OF DOMESTICECONOMY, 1. Limited Market Access: One of the main drawbacks of a domestic economy is limited market access compared to participating in the global economy. Domestic businesses may face constraints in reaching international markets, restricting their growth potential and