Fundamental Anaysis

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Fundamental Anaysis

Post by Admin on Thu Feb 18, 2016 2:32 pm


Fundamental analysis is the study of economic factors, industrial environment and the factors related to the company. The earnings of the company, the growth rate and the risk exposure of the company have a direct bearing on the price of the share. These factors in turn rely on the host of other factors like economic development in which they function, the industry belongs to, and finally companies’ own performance. The fundamental school of thought appraised the intrinsic value of shares through

• Economic Analysis
• Industry Analysis
• Company Analysis


The state of the economy determines the growth of gross domestic product and investment opportunities. An economy with favorable savings, investments, stable prices, balance of payments, and infrastructure facilities provides a best environment for common stock investment. If the company grows rapidly, the industry can also be expected to show rapidly growth and vice versa. When the level of economic activity is low, stock prices are low, and when the level of economic activity is high, stock prices are high reflecting the prosperous outlook for sales and profits of the firms. The analysis of macro economic environment is essential to understand the behaviour of the stock prices.


An industry is a group of firms that have similar technological structure of production and produce similar products. E.g.: food products, textiles, beverages and tobacco products, etc. These industries can be classified on the business cycle i.e. classified according to their relations to the different phases of the business cycle. They are classified into
 Growth industry
 Cyclical industry
 Defensive industry
 Cyclical Growth industry


Effect of a business cycle on an individual company may be different from one industry to another. Here, the main point is the relationship between revenues and expenses of the firm and the economic and industry changes. The basic objective of company analysis is to identify better performing companies in an industry .These companies would be identified for investment. The processes that may be taken up to attain the objective are as follows:

a. Analysis of management of the company to evaluate its trust-worthiness, capacity and efficiency.
b. Analyse the financial performance of the company to forecast its future expected earnings.
c. Evaluation of long-term vision and strategies of company in terms of organizational strength and resources of company.
d. Analysis of key success factor for particular industry.


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