UNIVERSITY OF MUMBAI

PROJECT REPORT ON
“STUDY ON FUNDAMENTAL ANALYSIS SUPPORTED BY CASE
STUDIES”

T.Y.B.M.S (SEMESTER VI)

ACADEMIC YEAR: 2018-2019

SUBMITTED BY
GEETIKA BHATIA

THIRD YEAR BACHELOR OF MANAGEMENT STUDIES

ROLL NO- 5

 PROJECT
GUIDE

H.R. COLLEGE OF COMMERCE AND ECONOMICS

VIDYASAGAR PRINCIPAL K.M. KUNDNANI CHOWK
123, D.W. ROAD,
CHURCHGATE, MUMBAI – 400 020.
2018-2019

I|Page
 PROJECT REPORT ON
“STUDY ON FUNDAMENTAL ANALYSIS SUPPORTED BY CASE
STUDIES”

SUBMITTED
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD
OF DEGREE THIRD YEAR BACHELOR OF MANAGEMENT STUDIES

BY
Name: GEETIKA
BHATIA ROLL NO: 5
T.Y.B.M.S (SEMESTER VI)

H.R. COLLEGE OF COMMERCE AND ECONOMICS

VIDYASAGAR PRINCIPAL K.M. KUNDNANI
CHOWK
123, D.W. ROAD,
CHURCHGATE, MUMBAI – 400 020.

II | P a g e
II | P a g e
 CERTIFICATE

This is to certify that Miss Geetika Bhatia student of H.R. College of Commerce
& Economics studying in T.Y.B.M.S (Semester VI), has successfully completed
her project report on Study on Fundamental Analysis supported by Case
Studies in the academic year “2018-2019”. The information submitted is true and
original to the best of the knowledge.

(Signature of Project Guide) (Signature of Principal)

(Signature of Internal Examiner) (Signature of External Examiner)

III | P a g e
 ACKNOWLEDGEMENT

I acknowledge the value assistance provided by H.R. College of Commerce &

Economics, for three-year degree course in B.M.S.

I specially thank the Principal PROF. PARAG THAKKAR, the

Co-ordinator of B.M.S and project guide Prof Pooja Lalwani for guiding me in
the right direction to prepare the project and giving their valuable time,
knowledge and guidance to complete the project successfully.

My family and friends were a great source of inspiration throughout my project,

their support is deeply acknowledged.
 DECLARATION

I, Miss Geetika Bhatia the student of H.R. College of Commerce & Economics,
studying in T.Y.B.M.S. (Semester VI), hereby declare that I have completed the
project report on “Study on Fundamental Analysis supported by Case
Studies” in the academic year 2018-2019.

The information submitted is genuine and practical to the best of my knowledge.

Date: April 2019

Place: H.R. College, Mumbai

NAME: - Geetika
Bhatia (ROLL NO.
5)
 TABLE OF CONTENTS

SR. NO. TOPIC PAGE

NO.

1. EXECUTIVE SUMMARY 1

2. INTRODUCTION 2

3. STATEMENT OF THE PROBLEM 3

4. OBJECTIVES OF THE STUDY 4

5. HYPOTHESIS OF THE STUDY 5

6. SCOPE OF THE STUDY 6

7. LIMITATIONS OF THE STUDY 6

8. RESEARCH METHODOLOGY 7

9. LITERATURE REVIEW 11

10. PRIMARY DATA 21

(A) DATA ANALYSIS AND INTERPRETATION 21

(B) INTERVIEWS 38

VI | P a g e
 11. SECONDARY DATA 44

(A) CHAPTER 1: WHAT IS FUNDAMENTAL 44

ANALYSIS

(B) CHAPTER 2: ECONOMY ANALYSIS 45

(C) CHAPTER 3: INDUSTRY ANALYSIS 46

(D) CHAPTER 4: COMPANY ANALYSIS 47

(E) CHAPTER 5: TOP DOWN APPROACH 48

(F) CHAPTER 6: BOTTOM UP APPROACH 49

(G) CHAPTER 7: FINANCIAL STATEMENTS 51

(H) CHAPTER 8: RATIO ANALYSIS AND 56

INTERPRETATION

12. CASE STUDIES 68

(A) BATA INDIA LTD 68

(B) MMP INDUSTRIES LTD. 74

13. CONCLUSION 85

14. BIBLIOGRAPHY 86

15. APPENDIX 87

VII | P a g e
 EXECUTIVE SUMMARY

Fundamental Analysis (FA) is a holistic approach to study a business. When an investor wishes to invest in a
business for the long term (say 3 – 5 years) it becomes extremely essential to understand the business from
various perspectives. It is critical for an investor to separate the daily short-term noise in the stock prices and
concentrate on the underlying business performance. Over the long term, the stock prices of a fundamentally
strong company tend to appreciate, thereby creating wealth for its investors.

We have many such examples in the Indian market. To name a few, one can think of companies such as
Infosys Limited, TCS Limited, Page Industries, Eicher Motors, Bosch India, Nestle India, etc. Each of these
companies have delivered on an average over 20% compounded annual growth return (CAGR) year on year
for over 10 years. To give you a perspective, at a 20% CAGR the investor would double his money in
roughly about 3.5 years. Higher the CAGR faster is the wealth creation process. Some companies such as
Bosch India Limited have delivered close to 30% CAGR. Therefore, you can imagine the magnitude, and
the speed at which wealth is created if one would invest in fundamentally strong companies.

Fundamental Analysis is the technique that gives you the conviction to invest for a long term by helping you
identify these attributes of wealth creating companies. Wealth is created only by making intelligent long-
term investments.

Fundamental Analysis is based on the premise that every share has a certain intrinsic value at a period of
time. This intrinsic value changes from time to time as a consequence of both internal and external factors.
The theory of fundamental analysis submits that one should purchase a share when it is available below its
intrinsic value and sell it when it rises above its intrinsic value. When the market value of a share is below
its intrinsic value it is undervalued, whereas if the market value of a share is above its intrinsic value it is
overvalued.

Fundamentalists seek to purchase under-priced shares and sell overpriced ones. They believe that although
the market price may deviate from the intrinsic value in the short term, in the long term the market price will
be equal to the intrinsic value.

Hence, this study tells you how to analyse a security in order to determine its fair value (also known as
intrinsic value), by evaluating relevant economic, financial, non-financial and other quantitative and
qualitative factors.

-1-|Page
-2-|Page
 INTRODUCTION

It is said that fundamental analysis is the study of the company and not the stock, meaning that the focus is on
the business activities of the enterprise. Fundamental analysis stands for the entire study of the basic
underlying elements, which have an impact upon economy. It represents a whole methodology, whose
objective is to forecast price action and market trends in the future by examining economic indicators,
government and central bank policies, societal factors and other force majeure events, such as war, natural
disasters etc.

Fundamental Analysis involves examining the economic, financial and other qualitative and quantitative
factors related to a security in order to determine its intrinsic value. It attempts to study everything that can
affect the security's value, including macroeconomic factors (like the overall economy and industry
conditions) and individually specific factors (like the financial condition and management of companies).
Fundamental analysis, which is also known as quantitative analysis, involves delving into a company’s
financial statements (such as profit and loss account and balance sheet) in order to study various financial
indicators (such as revenues, earnings, liabilities, expenses and assets). Such analysis is usually carried out
by analysts, brokers and savvy investors.
 STATEMENT OF PROBLEM

This project aims at undertaking a comprehensive study on how Fundamental Analysis helps develop a solid
understanding of the business and industry due to the in-depth, extensive research and analysis required to
conduct fundamental analysis.
This project is supported by case studies to get a deeper understanding of how Fundamental Analysis is
used. Thus, the research is titled, “Study on Fundamental Analysis supported by Case Studies”.
 OBJECTIVES OF THE STUDY

The main objectives of this study are:

1. To make projection of a company on its business performance.

2. To evaluate the company management and make internal business decisions.
3. To understand the macroeconomic variables which will impact the company’s progress.
4. To analyse the different approaches used in Fundamental analysis.
5. To study the different financial statements used.
6. To understand ratio analysis and its interpretation.
 HYPOTHESIS OF THE STUDY

Hypothesis is a testable prediction which is expected to occur. It can be a false or a true statement that
is tested in the research to check its authenticity. The hypothesis should be clear and precise. It should
be limited in scope and must be specific.

There are two types of hypothesis, they are:

 Null Hypothesis (Ho)

 Alternate Hypothesis (Ha)

Following are the hypothesis of the study:

1. Ho: Majority of the investors use Fundamental

Analysis. Ha: Majority of the investors use Technical
Analysis.

2. Ho: Equity shares is the most sought out investment tool.

Ha: Equity shares is not the most sought out investment
tool.

3. Ho: Most investors prefer Long term

investing. Ha: Most investors prefer Short
term investing.

4. Ho: Investors consider High return as the most attractive element while investing.
Ha: Investors do not consider High return as the most attractive element while investing.

5. Ho: Market forecast is the most important factor that influences decisions in making investments.
Ha: Market forecast is not the most important factor that influences decisions in making
investments.

6. Ho: Price to earnings ratio is the most important ratio while investing in a company.
Ha: Price to earnings ratio is not the most important ratio while investing in a
company.
 SCOPE OF THE STUDY

The scope of the research extends to identifying the intrinsic value of the company by using the
published financial details of the company. It deals with an in-depth study of the various ratios used in
fundamental analysis and the different financial statements issued by the company.

LIMITATIONS OF THE STUDY

 The sample size was limited to 102 respondents.

 The sample was taken from the population residing in India only. The results are not applicable to
the whole world.
 The paucity of time and resources was a major constraint.
 My research is biased towards citizens in the metropolitan and urban region and not the rural areas.
 The class of people is limited as it does not include people from the lower income level.
 The limited knowledge of the respondents regarding the topic may hamper the true conclusion of
the study.
 Being an opinion survey, a lot of subjectivity is involved in the study.
 RESEARCH METHODOLOGY

RESEARCH METHODS
Primary as well as Secondary research was employed in this project.

 Primary research is the first-hand research that the researcher collects, by interacting with the sample
population and the conclusions and analysis he/she draws from the data that has been obtained.
 Primary research in this project involved interacting with 102 individuals to understand and comprehend
if they use fundamental analysis in their daily investments.

 Secondary research is the background research done by the researcher on already existing information
regarding the topic.

 This helps the researcher in determining whether previous research papers have been written on that
particular topic and if and how new ground on that particular topic can be covered.

 It also helps the researcher in building a base for the questions to be asked to the sample population and
to construct an informative questionnaire and ask all the right questions.

 Secondary research in this project involved reading and examining various research papers, articles, case
study to understand Fundamental Analysis.
 QUANTITATIVE DATA: SURVEYS

 This method captures information through the input of responses to a research instrument containing
questions (such as a Questionnaire).
 Information can be input either by the respondents themselves (E.g.: An Online Survey) or, the
researcher can input the data (E.g.: a phone survey, a one-on-one survey, a mall intercept, etc).

 The main methods for distributing surveys are via a website, postal mail, phone, or in person.

 However, newer technologies are creating additional delivery options including through wireless
devices, such as smart phones and technologies wherein the information gets recorded in real time and
can be viewed and intercepted very easily through pie charts and bar graphs.

 Survey for this study was undertaken via an online questionnaire. Questions included views of the
people from various backgrounds.

QUALITATIVE DATA COLLECTION

 Qualitative data collection requires researchers to interpret the information gathered, most often without
the benefit of statistical support. If the researcher is well trained in interpreting respondents’ comments
and activities, this form of research can offer very good information. However, it may not hold the same
level of relevancy as quantitative research due to the lack of scientific controls with this data collection
method.

RESEARCH DESIGN

 The research design comprised a method of primary data collection using a survey given to 102
respondents. The design also included secondary data expressed through a review of past literature in the
concerned area, indicating that a certain segment of the study was exploratory in nature.
 The design used descriptive tools such as pie chart and bar graphs to highlight the data analysis.
Survey started: December
2018 Survey ended: January
2019

RESEARCH INSTRUMENT
The research tool used was that of a survey comprising 17 questions as well as personal interviews that
covered different areas of the research problem. The questions were multiple choice in nature and closed
ended and only one question was open ended. It was compulsory for all 102 respondents to answer all
the questions. The survey was anonymous but certain demographic details such as age and occupation
were asked for. The questionnaire made is enclosed in the annexure.

SAMPLE SIZE

Sample size is the number of respondents who have been surveyed or the number of people who have
filled up the questionnaire.

The sample size of my research project is 102 respondents.

SAMPLING UNIT

A decision has to be taken concerning a sampling unit before selecting samples. Sampling unit may be a
geographical one such as state, district, village or a construction unit such as house, flat, etc.

In my research project, the sampling unit consists of respondents who can invest across India.

SAMPLING DESIGN

The study used the technique of Random Sampling for the survey.

This refers to a basic sampling design where a subset of the population is randomly selected to be a part
of the sample.

The sample of this study was limited to 102 respondents.

STATISTICAL TECHNIQUE
The study employed the use of bar graphs and pie charts to interpret and express the data in the form of
percentages.

Graphs allow for descriptive secondary analysis of data.

The survey had a total of 102 respondents. The responses to each question were expressed as percentages
and then a pie chart was prepared for each question, excepting a few. For those exceptions a horizontal bar
graph was prepared.

Each graph was accompanied by a key that contained the response options for the specific question and the
colour corresponding to each response in the chart.

The graphs allowed for interpretation of the responses from the point of view of which response option had
been chosen by the majority of the respondents versus a minority.

- 10 - | P a g e
Article 1: LITERATURE REVIEW

“Fundamental analysis helps you know if the stock is undervalued

or overvalued”

DNA Newspaper

Published on: December 1st,

2015

A method of security valuation which involves examining the company's financials and operations,
especially sales, earnings, growth potential, assets, debt, management, products, and competition.
Fundamental analysis takes into consideration only those variables that are directly related to the company
itself, rather than the overall state of the market or technical analysis data.

Fundamental analysis is critical component in stock analysis. It is quite accessible, extremely valuable. The
problem of fundamental analysis is however that it can very easily get quite complicated, but it doesn't have
to be.

A fundamental analysis is all about getting an understanding of a company, the health of its business and its
future prospects. It includes reading and analyzing annual reports and financial statements to get an
understanding of the company's comparative advantages, competitors and its market environment.

The end goal of performing fundamental analysis is to produce a value that an investor can compare with the
security's current price, with the aim of figuring out what sort of position to take with that security (under-
priced = buy, overpriced = sell)

Fundamental analysis is built on the idea that the stock market may price a company wrong from time to
time. Profits can be made by finding under-priced stocks and waiting for the market to adjust the valuation
of the company. By analysing the financial reports from companies, you will get an understanding of the
value of different companies and understand the pricing in the stock market. After analysing these factors,
you have a better understanding of whether the price of the stock is undervalued or overvalued at the current
market price. Fundamental analysis can also be performed on a sectors' basis and in the economy as a whole.

Example of this is that if the current market price of a stock is lower than the intrinsic price, the investor
should purchase the stock because he expects the stock price to rise and move towards its true value.
Alternatively, if the current market price is above the intrinsic price, the stock is considered overbought and
the investor sells the stock because he knows that the stock price will fall and move closer to its intrinsic
value. To determine the true price of the company's stock, the following factors need to be considered.

- 11 - | P a g e
- 12 - | P a g e
In the long run, the stock price should reflect its fundamental true value. However, in the short run, a stock
might have great fundamentals but still be moving in wrong direction. This can be due to other factors, such
as news releases and changes in future outlook, which also have effect on the price. Trends in the market and
investors' emotions also effect the short-term fluctuation in stock prices resulting in the current market price
deviating from its true value.

One question that is important to consider is: "What is the difference between a great business and a great
investment?" - the answer is "price". If you pay too high price for even the best stock in the world, you will
never make a good return on your investment. Therefore, a great investment does not likely have a high
price. The point of this question is that the price you pay for a stock does matter enormously. It is the most
important factor in your return. Accordingly, doing your fundamental analysis (thoroughly) is of a great
importance when making your investments.

The key factors to look for fundamental analysis are earnings, profit margins, return on equity, price to
earnings and price to book. When determining whether a company's stock is a good investment, fundamental
analysis is a great toolbox to reach a conclusion. Fundamental analysis, like technical analysis, attempts to
predict which stocks are valuable and which are not. According to its proponents, fundamental analysis
offers a fuller picture of the possible movements of both the stock market and individual stocks because as
many elements as possible are investigated. Technical analysis, on the other hand, only looks at past data of
stock prices. Perhaps the greatest argument in favour of fundamental analysis can be made by observing the
success of one of its most famous proponents: Warren Buffett.

The writer is senior vice president, Geojit BNP Paribas

ANALYSIS:
From the article above we can conclude that Fundamental Analysis is truly useful because:

 Fundamental Analysis helps in getting an understanding of a company, the health of its business and
its future prospects to make a wise investment decision.
 It acts as a guideline to the investors and tells them whether the price of the stock is undervalued or
overvalued at the current market price.
 It determines whether a company's stock is a good investment, fundamental analysis is a great
toolbox to reach a conclusion.
 Fundamental analysis offers a fuller picture of the possible movements of both the stock market and
individual stocks because as many elements as possible are investigated
Article 2:

“Analyse Your Stocks like a Pro with Fundamental Analysis”

India Infoline News Service

Published on: June 13th,
2018

Under Fundamental analysis, you gather concrete information about a company's business to gauge the
real value of the stock. On the other hand, technical analysis encompasses looking at the way pure market
factors will affect a stock's movement.
Picking a stock to invest in should invariably involve serious background research about the company,
besides other factors. As an investor, even if you do not possess a traditional economics background, you
should still dig deep into the fundamental analysis of a company, i.e., study the financial health of a
company in order to determine whether it is a worthy investment option.

Fundamental vs Technical Analysis

Stock analysis primarily involves two main schools: Fundamental analysis and technical analysis. Under
Fundamental analysis, you gather concrete information about a company's business to gauge the real
value of the stock. On the other hand, technical analysis encompasses looking at the way pure market
factors will affect a stock's movement.

For obvious reasons, Fundamental analysis is central to your ability to make money in the stock market.
This is because this analysis makes you investigate the company’s fundamentals and its corporate health.

Business Basics
There are some business basics you need to keep in mind before you start analysing public companies. As
an investor, you need to understand that a company’s financial statements are perhaps one of the most
telling signs of how the company is performing. You need to study the three principal financial
statements: income statement, balance sheet and statement of cash flows.
The income statement subtracts expenses from revenue to calculate the company's income or profit. The
balance sheet compares a company's assets against its liabilities and stockholders' equity, while the
statement of cash flows elaborates money taken in and doled out for functions such as operating,
financing, or investing. Understanding financial statements are integral to fundamental analysis since
they provide you with the numbers that will be used in your analysis.

However, fundamental analysis doesn’t stop merely at addition of numbers. It requires collecting
qualitative information as well. You should look for subtle information such as management
communication and company’s expectations. You should try to gauge how efficiently the company
moves towards its goals.
 In overall terms, a company’s performance can be assessed in terms of its earnings. But if you want to
check the performance of certain assets, then you should look at a metric like return on assets (ROA). A
number of numbers and ratios can be employed to estimate a company's performance. Metrics such as
price-to-earnings ratio, earnings per share and gross margin are all useful in determining a company's
relative health.

Be careful while comparing companies

When comparing the performance of two companies, you should ensure that you compare similar type of
companies. For instance, analysing a technology company like Google, with a P/E on any given day

results four times as high as that of US steel, is unlikely to be a fruitful exercise. This is because while a
lower P/E is generally more favourable as it suggests that a company with a given stock price takes in
greater profits, US Steel is in the basic materials sector, which as a group doesn't trade with a P/E
comparable to the tech sector. Hence, for your fundamental analysis, it is crucial that you compare
similar kind of entities.

Be a professional
Ideally, fundamental analysts work hard to find companies whose intrinsic value are greater or will be
greater than its market value. This market approach is commonly referred to as "value stock" investing.
And the key to using fundamental analysis like a professional is Benchmarking. Benchmarking is the
process of observing standards against which you can measure the stock you are analysing. However,
there are no strict rules for fundamental analysis, which is why even the professionals get things wrong
every once in a while. And one of the best ways to strengthen your fundamental analysis skills is through
practice. As an investor, you should always challenge yourself. Benchmark stocks, develop opinions
about them, and analyse the results.

What should you do to improve your skills?

Here are a few valuable activities you can do to hone your fundamentals skills:

1. Pick 2 stocks and monitor them for 3 months. Pick one stock you like instinctively and one you
don't. Study their fundamentals and make an objective assessment about each stock based on those
fundamentals alone. Keep a record of how each stock progress over a period of 3 months.

2. Create a fundamental checklist. Make a list of the ratios, numbers, and other information you use to
evaluate a stock. This is your checklist against which you will assess a stock. This list will help in
breaking down the worthiness of a stock and will aid you on a regular basis.

3. Build your benchmarks. In course of time, you should be able to come with your own benchmarks.
Every time you analyze a stock, you should refer how it compares with the benchmark. As you build a
larger library of benchmarks, you will find greater success with fundamentals.

Thus, as mentioned earlier, it is advisable to stop investing blindfolded and start investing using
fundamental and technical analysis tools to avoid falling into risk traps. Also, one should first analyze
their risk appetite, set clear goals and then take steps towards investing.
ANALYSIS:
From the article above we can conclude that:

 Stock analysis primarily involves two main schools: Fundamental analysis and technical analysis.
Under Fundamental analysis, you gather concrete information about a company's business to gauge
the real value of the stock.

 The business basics before investing in a company is to study the three principal financial statements:
income statement, balance sheet and statement of cash flows.
 An investor should look for subtle information such as management communication and company’s
expectations. They should try to gauge how efficiently the company moves towards its goals.

 Metrics such as price-to-earnings ratio, earnings per share and gross margin are all useful in
determining a company's relative health.

 The effective way to compare performance of companies is to compare similar kind of entities.
 To improve and hone fundamental skills, an investor should pick 2 stocks and monitor them for 3
months, create a fundamental checklist of ratios, and build a benchmark.

 Thus, before investing an individual should use fundamental analysis to make wise investment
decisions which suits their risk appetite and helps them achieve their goals.
Article 3:

“Fundamental analysis is critical for stock investing”

Written by: By Nagarajan Narasimhan, Senior Director and Business Head, CRISIL Research
Economic times

Published on: Dec 12, 2016

Risk comes from not knowing what you are doing. Investment guru Warren Buffett’s warning rings true for
all investments, but more so for equities. Historical data proves that fundamental analysis of companies is
key to sustainable wealth creation over the long term. It looks at key parameters to assess the long-term
prospects of a company and its competitive advantage.

Prospect of industry
To know the prospects of a company, the investor must understand the external environment in which it
operates. He must be able to assess the parameters such as the size of the industry—both domestic and
global— as well as the import-export scenario which indicates the potential for the company. Similarly,
one must understand the industry growth stage along with the changing trends and intensity of competition.
Its future plans, including expansion, diversification and acquisitions can also be sensed from this.

Company's positioning
Assessment of a company’s positioning tells us how well it is placed within the industry and its strategy to
achieve long-term goals. While evaluating a company’s positioning, an investor must understand its target
segments in terms of geographies and demographics and whether it caters to business or directly to
consumers. This gives an idea of the competitive advantages (or disadvantages) of the company and
provides insights about the appropriateness of strategy in achieving its stated long-term vision. It also
reveals the challenges the company is likely to face while pursuing its growth strategy. These could be risks
related to the industry performance, competition, cost pressure and adequacy of funds to name a few.

Quality of management and corporate governance

While the first three parameters can be quantified to a certain extent, the last two are qualitative but
important. After all, a company is run by people and it is important to understand how they qualify on
integrity. An assessment of the management’s capabilities, including the second rung leadership, is essential
because it defines the strategy and decisions taken by the company. Also important are corporate
governance practices such as disclosure norms, transparency in reporting, board practices and quality of
discussions, profile of board members and independence of the board.
Financial performance
An investor must be able to analyse its financial performance, which includes analysis of profits, cash
flow generation and return on capital. These indicate how well a company is doing and highlight its
growth potential. A company which is well positioned in the industry and has competitive advantage
would naturally be a good performer—financially and operationally. Many documents, such as financial
statements, auditor’s report, director’s report on the company’s operations and corporate presentations are
now publicly available on company websites and financial portals.
ANALYSIS:
From the article above we can conclude that:

 Investment guru Warren Buffett swears by Fundamental analysis as a key to wealth creation over a
long term.

 In order to effectively carry out Fundamental Analysis one must understand and analyse the industry
in which the company operates and the factors that impact the industry.

 Assessment of a company’s positioning tells us how well it is placed within the industry and its
strategy to achieve long-term goals.

 Corporate governance practices of a company such as transparency in reporting, board practices and
quality of discussions is an important factor of fundamental analysis.

 An investor must be able to analyse documents such as financial statements, auditor’s report and
corporate presentations as these indicate how well a company is doing and its growth potential.
Article 4:

“How to Use Fundamental Analysis When Investing”

Written by: TheStreet Staff
Published on: Jun 6, 2018

Not every investor or trader will execute the same strategy when attempting to make money in the stock
market. While everyone will insist that their way is the best market strategy, I believe that you need to stick
to the approach that best fits your talent and experience. It's a complicated market, and just as there are many
ways to fail, there's more than one way to find success.

I categorize investing/trading styles into four different categories:

1. Fundamental: Decision making based on quantitative analysis of the company's financial information
and qualitative analysis of its business, competition and economic environment.

2. Technical: Using stock charts and chart patterns to discern trading decisions.

3. Statistical: Developing trading models derived from a database of multiple variables.

4. Arbitrage: The simultaneous purchase and sale of a security, securities or derivatives in order to extract a
low-risk profit.

My personal style is to primarily utilize a fundamental approach to investing. In addition, I have developed a
series of statistical index trading models, which I also trade on, but this accounts for only a fraction of the
assets I manage. From time to time, I will also employ arbitrage techniques as well as incorporate technical
analysis when making a trading decision or risk-managing a position. For this instalment, I will focus on the
fundamental approach to investing.

Are You Using Fundamental Analysis for Growth or Value?

There are two primary schools of thought to fundamental investing: growth and value.

Fundamental Investing: Growth

If you consider yourself a "growth investor," then you are concerned with the rate at which a company will
increase its earnings stream over a period of time. Growth investors seek out companies with accelerating or
high levels of sustained growth, while companies with declining growth rates will be avoided. As an
example, Netflix has seen incredible growth of late, blasting past expectations in their earnings report for the
first fiscal quarter of 2018. By late May of the same year, the shares had seen an increase of 111% over a 12-
month span.
However, stocks can hit the virtual brick wall of growth and exhibit growth deceleration. Companies that
once been the hot stock that couldn't stop rising start to mature, and their growth rate is no longer what it
once was. You're looking for sustained growth, but it's not always going to sustain that growth rate as long
as you'd prefer. As a result, growth is a two-sided equation where the seductive aspects are balanced by its
risks.

Fundamental Investing: Value

Value oriented investors can trace their origins back to Benjamin Graham and David Dodd who in 1934
published the ground-breaking textbook titled Security Analysis. Value investors seek to purchase companies
that are selling (trading) at less than their intrinsic value. This intrinsic value can be calculated by analyzing
the discounted cash flows of future earnings, valuation of assets less liabilities, or via certain ratios such as
the price-to-earnings ratio (P/E or multiple) and the price-to-book ratio (stock price divided by book value
per share). The most famous value investor of all-time is Warren Buffett.

Some value "purists" do not place any value on growth. Others value investors, such as Warren Buffett,
believe that value and growth are inextricably linked. Some follow the theory of "growth at a reasonable
price" (or GARP), which was pioneered by another famous investor, Peter Lynch. GARP combines elements
of both value and growth investing.

How Fundamental Traders Analyze Stocks

Fundamental stock analysis begins with assembling the necessary information that will provide the basis for
your complete understanding of a company that you're interested in. There's no shortage of public data
available at your fingertips to help give you a better idea of where a stock could be headed, and if you want
to come even close to a clear picture on the direction you want to take, you'll need all of it.

If you're serious about fundamental analysis, here is a list of the information you'll need to gather in order to
get started:

 Financial Statements: If you understand how to read financial statements, now is a perfect time to
utilize that. At a minimum, make sure you read the most recent annual report and the two most recent
quarterly reports.

 Conference Calls: Make sure you're also listening to and analyzing earnings calls. Many companies
have archives of these calls online. Listen to the two most recent earnings calls. Otherwise, there are
some services from which you can purchase conference call transcripts.

 Press Releases and News: Do a search on news and financial websites and read all the press
releases, news items and commentary for the company that have been published since the last
earnings report.

 Analysts Reports: Review as many analysts reports as you can. However, here are two important
caveats: Make sure the report is recent and stick to analysts with a solid reputation for coverage of
that company or industry. Look for the "axe" in the name. The axe is the go-to analyst with the best
historical call on that stock.
  Historical Data: Recent statements and reports are extremely helpful, but historical data can be of
use as well. Some websites and programs provide historical metrics for individual stocks, with data
and, in some cases, grades and recommendations for what to do with the stock.

 Analysts Estimates: Wall Street analysts provide clientele with their estimates for EPS and
revenues. This data is then accumulated by information providers and an average (or consensus)
estimate is then calculated. This consensus then becomes the basis for the "earnings expectation,"
which is often talked about in financial media.

With all of the above company-specific data, you can start to determine if a company's stock is
a fundamental buy, hold or sale (or perhaps even a short-sale). But before you can do that, you need to first
get comfortable with all these different sources of information. So, to help you learn the ways of the
fundamental investor and analyst:

 For your favourite public company, obtain all of the data I listed above and carefully read (or listen)
through it all.

 Investigate what analysts have to say to about the company.

 Check out a copy of Graham and Dodd's Security Analysis at your local library or obtain a copy online.

ANALYSIS:
From the article above we can conclude that:

 There are 4 investing styles known as Fundamental, Technical, Statistical and Arbitrage.
 Fundamental Analysis can be used for Growth or Value investing.
 A growth investor is concerned with the rate at which a company will increase its earnings stream
over a period of time and they seek out companies with accelerating or high levels of sustained
growth.
 Value investors seek to purchase companies that are selling (trading) at less than their intrinsic
value. This intrinsic value can be calculated by analysing the discounted cash flows of future
earnings.
 Fundamental traders analyse stocks by reading financial statements, listening to conference calls,
following news and press releases. They also review and analyse reports and historical data.
Analysts also provide estimates for EPS and revenues.

- 20 - | P a g e
- 21 - | P a g e
 PRIMARY DATA
DATA ANALYSIS AND INTERPRETATION OF QUESTIONNAIRE

QUESTION 1:

What is your Gender?

GENDER NUMBER OF RESPONDENTS

Male 58
Female 44
Other 0

Analysis:
Around 102 people were asked to fill the questionnaire, out of which majority of the investors are
Males (approx. 57%) and about (43%) of the females participated in the survey.

There isn’t a vast difference in the gender of the respondents.

QUESTION 2:

What is your Age?

AGE GROUPS NUMBER OF RESPONDENTS

18-29 years 48
30-39 years 15
40-49 years 30
50-59 years 6
60 years and above 3

Analysis:
Most of the respondents who were surveyed are in the age group of 18-29 years (47.1%), followed by
respondents in the age group of 40-49 years (29.4%) and 30-39 years (14.7%). The least percentage
of respondents are in the age group of 60 years and above (2.9%).

The diversification in the age groups highlights the different perceptions of investors of various age
groups ensuring that it covers as many differentiations of opinions between those age groups.
QUESTION 3:
What is your Employment?

EMPLOYMENT NUMBER OF RESPONDENTS

Self Employed 20
Employed in a private organization 30
Employed in Government organization 7
Student 31
Homemaker 11
Retired 2
Other 1

Analysis:

Majority of the respondents are students (30.4%), it signifies how the youth is concerned about investing
and managing their money seriously. Following closely are respondents belonging to a private organization
(29.4%) and self-employed (19.6%). Least percentage of respondents are retired (2%).
This showcases that the questionnaire is highly influenced by the younger generation which consists of
the students and what their preference and perceptions are on fundamental analysis.
QUESTION 4:

What is your Income?

INCOME NUMBER OF RESPONDENTS

Under Rs. 5 lakhs p.a. 48
Rs. 5-10 lakhs p.a. 14
Rs. 10-20 lakhs p.a. 13
Rs. 20-30 lakhs p.a. 9
Rs. 30 lakhs and above 7
Other 11

Analysis:

Majority of the respondents earn an income of under 5 lakhs p.a. (47.1%), followed by incomes between 5-
10 lakhs p.a. (13.7%) and 10-20 lakhs p.a. (12.7%). Least percentage of respondents earn an income
between 20-30 lakhs p.a. (8.8%) and above 30 lakhs p.a. (6.9%).
According to their incomes, the respondents formulate their investment strategies.
QUESTION 5:

What is your Area of Residence?

AREA OF RESIDENCE NUMBER OF RESPONDENTS

Metropolitan 68
Urban 28
Semi-urban 6
Rural 0
Other 0

Analysis:
Majority of the respondents belong to the Metropolitan cities (66.7%), followed by Urban (27.5%). Least
percentage of respondents belong to the semi-urban areas (5.9%).

None of the respondents surveyed belong to the Rural areas.

QUESTION 6:
Do you invest regularly in the stock markets?

INVEST NUMBER OF RESPONDENTS

Yes 39
No 29
Sometimes 34
Other 0

Analysis:

Out of the sample size of 102 respondents, (38.2%) of the respondents invest regularly in the stock
markets while (28.4%) of the respondents don’t invest in the stock markets at all. (33.3%) invest
sometimes and not regularly.
Hence this acts as a warning bell regarding the need to spread the benefits of investing among the people
of India.
QUESTION 7:

If yes, What type of investments?

TYPE OF INVESTMENTS NUMBER OF RESPONDENTS

Equity Shares 64
Debentures or Bonds 13
Mutual Funds 53
Real Estate Investment Trust 3
Life Insurance and General Insurance 21
Derivatives 9
Gold and other commodities 18
None 21
Other 1

Analysis:

Most of the investors invest in Equity Shares (62.7%), this shows that they are seeking dividend,
capital appreciation as well as bonus shares.
This is followed by investors investing in Mutual funds (52%) proving that they prefer to have investments
that they can liquidify quickly in case of emergencies and have transparency, diversification and
professional management in their investments. (20.6%) invest in Life insurance or general insurance and
(17.6%) in Gold and other commodities.
Thus, this proves our hypothesis number 2 that Equity shares is the most sought out investment tool.
QUESTION 8:

What percentage of your portfolio is invested in the equity market?

% OF PORTFOLIO INVESTED IN NUMBER OF RESPONDENTS

EQUITY MARKET
Less than 25% 31
25% - 50% 23
51% - 75% 16
More than 75% 12
Not applicable 20

Analysis:

About 31 investors have less than 25% of their portfolio invested in the equity market. This shows that
they’re conservative investors as the equity markets are subject to high risk and fluctuating rates. Only 12
investors invest more than 75% of their portfolio in equity markets. This shows that they’re risk taking
and expect high capital gains and dividends.
QUESTION 9:

Which analysis do you do, before investing in the stock market?

TYPE OF ANALYSIS NUMBER OF RESPONDENTS

Fundamental Analysis 44
Technical Analysis 6
Both 25
Not Applicable 24
Other 3

Analysis:

Majority of the investors rely on Fundamental Analysis (43.1%) while making investment decisions. This
shows that they study the financial statements in depth before investing. Least percentage of respondents
use Technical Analysis (5.95%) which show that they aren’t into trading and prefer long term investments
or don’t have much exposure into Technical Analysis.
Our hypothesis number 1 gets proved that Majority of the investors use Fundamental Analysis.
QUESTION 10:

Do you prefer Long term investing or Short-term investing (trading)?

TERM OF INVESTING NUMBER OF RESPONDENTS

Long term investing 46
Short term investing 6
Both 21
Depends on the market conditions 14
Not applicable 14
Other 1

Analysis:

Out of 102 respondents, (45.1%) prefer Long term investing as it exhibits lower volatility and there’s a
tax advantage on long term capital gains.
(6%) prefer Short term investing to make quick money. (20.6%) prefer both long term and short-term
investing. (13.7%) believe that it depends on market conditions and will invest according to the
favourable situation.
This proves hypothesis number 3 which states that Most investors prefer Long term investing.

- 30 - | P a g e
QUESTION 11:

What is your purpose of investment?

PURPOSE OF INVESTMENT NUMBER OF RESPONDENTS

Quick short-term gain 14
High long-term gain 55
Meet the cost of inflation 9
Generate a specified sum of money for a
specific goal in life 28
Make a provision for an uncertain future 22
Earn return on idle resources 22
Not applicable 13
Other 0

Analysis:

Most of the investors invest for high long-term gain (53.9%) for safety of investment and less volatility.
(27.5%) of the investors want to generate a specified sum for the future and (21.6%) want to make a
provision for an uncertain future and the same percentage of investors want to earn returns on idle
resources. Very few investors want quick short-term gain (13.7%) and meet the cost of inflation (8.8%)
QUESTION 12:

What attracts you to the Equity market?

ATTRACTS YOU TO THE NUMBER OF RESPONDENTS

EQUITY MARKET
High return 77
Dividend 32
Speculation 9
Liquidity of invested fund 28
Low share price 17
Not applicable 16
Other 2

Analysis:

Majority of the investors are attracted to High returns in the Equity market (75.5%) followed by Dividends
(31.4%) as it’s an additional source of income from shares. Only (27.5%) of the investors are attracted to
the Liquidity that the equity markets provide. Very few investors are attracted to the Low share price
(16.7%) and Speculation (8.8%).
Hypothesis number 4 stating that Investors consider High return as the most attractive element
while investing, is proved.
QUESTION 13:
How satisfied are you with the returns on your investment?

SATISIFIED WITH INVESTMENTS NUMBER OF RESPONDENTS

Highly dissatisfied 9
Dissatisfied 9
Neutral 45
Satisfied 27
Highly satisfied 6

1- Highly dissatisfied, 2- Dissatisfied, 3- Neutral, 4- Satisfied,

5- Highly satisfied

Analysis:

Most of the investors are neutral about their returns on investment (46.9%). Only (6.3%) investors are
totally satisfied with their returns and (9.4%) of the investors are totally dissatisfied with their returns on
investment.
QUESTION 14:

What are the various factors that influence your decision in making Investments?

INFLUENCE DECISION MAKING NUMBER OF RESPONDENTS

IN INVESTMENTS
Broker 17
Friends/ Family/ Relatives 33
Interest rates 24
Current news and News channels 44
Economic Growth 41
Market forecast 47
Government Policies 41
Not applicable 17
Other 5

Analysis:

Majority of the investors rely on Market forecast (46.1%) and News channels (43.1%) which shows that
they take independent decisions based on fundamental analysis. Following closely is Economic growth
(40.2%) and Government policies (40.2%). All these factors cater to fundamental analysis. Very few people
are dependent on their Broker (16.7%) and their friends/family/relatives (32.4%).
This proves our hypothesis number 5, that Market forecast is the most important factor that
influences decisions in making investments.
QUESTION 15:

Which ratios are important to you while investing in a company?

IMPORTANT RATIOS NUMBER OF RESPONDENTS

Price to Earnings Ratio 55
Earnings Per Share 47
Dividend Yield 25
Return on Equity 39
Profit Margin 28
Debt to Equity Ratio 25
Asset Turnover Ratio 12
Not applicable 15
Other 4

Analysis:

For majority of the investors, Price to Earnings Ratio (53.9%) is the most important ratio since its useful
metric for evaluating the relative attractiveness of a company's stock price compared to the current earnings
of a firm. Secondly, Earnings per share (46.1%) serves as an indicator of a company's profitability. Returns
on equity (38.2%) also holds a lot of importance as it tells the investors how the management is using the
financing from equity to grow the business. Dividend yield (24.5%), Profit margin (27.5%) and Debt to
equity ratio (24.5%) also hold some importance to investors.
Thus, this proves our hypothesis number 6 that Price to earnings ratio is the most important ratio
while investing in a company.
QUESTION 16:

Which sectors do you prefer to invest in?

Analysis:

Being an open-ended question, majority of the investors prefer to invest in sectors like Banking
companies, Financial services, IT, FMCG, Housing Finance Companies. Some investors feel that their
choice of sector depends on the economic condition or the macro-economic environment.
QUESTION 17:

According to you, what will be the future of equity markets in India?

VIEWS ON FUTURE OF EQUITY NUMBER OF RESPONDENTS

MARKETS IN INDIA
Bullish 48
Bearish 7
Can’t say 45
Other 2

Analysis:

Most of the investors are Bullish (47.1%) about the future of equity markets in India. They feel that the
markets will always grow positively. On the other hand (44.1%) of the investors are uncertain about
the future of the equity market. Very few investors are Bearish (6.9%) about the future of equity
markets.
 INTERVIEWS

1. Interviewee: Mohnish Vijan

Managing Director
Vijan Shares & Securities Pvt. Ltd.

Q) Do you use fundamental analysis before making an investment decision? What

key factors/ ratios should be looked at while carrying out Fundamental Analysis?

A) I am a Value investor and I use basic tools like Discounted Cash flows. The most important thing is to
understand the business and its potential and the consequences which will impact the business.
The other factor that should be looked at is Debt, whether the company is debt free or is debt ridden.
Looking at the Debt-equity ratios becomes essential and we get to know whether the business is sustainable
or not.
Return on equity or Return on Capital Employed and the EBITDA margins are to be considered while
evaluating a company. Lastly, the credibility of the promoter and what the Management has to say and its
track record is important.

Q) Which sectors do you think has more potential to grow?

A) According to me there are a couple of sectors which have the potential to grow. Corporate Banks like
ICICI, SBI have the potential to grow because of the FDA cycle and their provisions have decreased. The
lend and grow at the rate of 14%-15%.
Secondly, the Capacity Utilisations companies like metals they are deleveraged and their debt has
decreased and capacity utilisation has gone up by 80%. So, they can increase pricing and get operating
leverage.

Q) Do you think the current situation like trade wars, elections impact the market?

A) Prices usually reflect the earnings of the companies, so if the earnings have increased even the prices will
increase. The market may temporarily be affected because of sentimental issues but it should not make a big
impact. Markets automatically correct themselves in 2-3 days.
Only the companies directly affected by crude prices like the airlines sector may be affected but will
eventually correct itself.
Analysis:

From the interview conducted of Mr. Mohnish Vijan, Managing Director at Vijan Shares and Securities Pvt.
Ltd in Santacruz, I can conclude that he is a value investor (select stocks they believe the market has
undervalued) and seeks to understand the business and its dynamics and looks at key factors like Debt-equity
ratio, Return on equity and Management talks. He also believes the current situation of trade wars and
elections, would temporarily impact the market. Mr. Mohnish is of the view that Corporate banks and
Capacity utilisation firms have more growth potential.
2. Interviewee: Mr. Adarsh Lahoti
Associate
JM Financial, Prabhadevi

Q) Would you prefer Fundamental Analysis over Technical Analysis?

A) Personally, I would prefer Fundamental Analysis over Technical Analysis because Fundamental Analysis
gives a historical view by which you can forecast the future trends. This makes the market efficient as
near- term events are reflected in the prices of the stocks and index. Technical Analysis displays the current
situation only. It is based on far term events which make the market inefficient.

Q) How would you invest in a company and how do you know it’s a good buy?

A) This depends from person to person and who you are as an investor, it also depends on how much money
I have to invest. Firstly, I would conduct a Bottom up or Top Down approach. Then I would select a
sector and use Discounted Cash flows. Some of the key important ratios are Price to Earnings Ratio (P/E
Ratio), Earnings per share (EPS), Dividend Yield, Return to equity and Debt-equity ratio. Businesses with
strong moats and market positions with the ability to compound earnings steadily is an important outlook.

Q) As young investors, should we go for Large cap companies or Midcap and Small
sized companies?

A) Large cap companies are safe but their valuations are expensive and Midcap and Small size companies
are volatile but are growing. Lots of research is required into investing a company. Experience in the
markets is also essential. Listening to what the Management says is important as well as they mention their
future plans and ambitions and the growth rate. As an investor you can check whether the management has
lived up to its expectations and whether the company and its management can be trusted.

- 40 - | P a g e
Analysis:

From the interview conducted of Mr. Adarsh Lahoti who is an Associate at JM Financial in Prabhadevi, I
can conclude that Mr. Adarsh prefers Fundamental Analysis. He prefers the key financial indicators of Price
to Earnings Ratio, Earnings per share, Dividend Yield, Debt to equity ratio and Return on Equity.
He feels that before investing in the stock market a lot of experience and research is necessary and the
credibility of the promoter and management is an important aspect.
3. Interviewee: Mrs. Poonam Jain
Professor
H.R. College of Commerce and Economics

Q) Do you use Fundamental Analysis? If yes, then which ratios do you use while investing?

A) Yes, I use Fundamental Analysis and I feel it is mandatory to use it in the long term. The key ratios that I
look at while investing are P/E Ratio, Capital Gearing Ratio and Net Profit ratio.

Q) Are you getting the desired returns on investment?

A) I am getting my expected returns and for this you need to use ratios to help you get the right value for
your stock. Find companies which have lower P/E Ratio as compared to the market. If the market doesn’t
have negative sentiment then you can get high capital gains. Investing in new and growth companies have
high return expectations since blue chip companies already have reached the benchmark P/E.

Q) With the RBI governor resigning and upcoming elections, do you think these events
will impact the market?

A) India is a country which is driven by sentiments. It has a strong efficient market hypothesis which
means that as the information is absorbed, it is reflected in the prices.
Before the news, the market goes down and as the news occurs the markets go up in a day or two. Even
when the RBI governor resigned and BJP lost elections in major states, the market was expected to go down
but went up in a very short span of time. So, these events impact the market for a short period and eventually
markets reach to their normal value.

Q) Which sectors do you think has more potential to grow?

A) I personally refer safer sectors like Technology and Pharmaceutical companies. I avoid investing in
Petroleum, Commodities like gold, and Real estate since there is high risk and volatility involved. It is also
highly overvalued.
Analysis:

From the interview conducted of Mrs. Poonam Jain who is a Finance professor at H.R. College of
Commerce and Economics, I can conclude that Mrs. Poonam prefers Fundamental Analysis. She prefers
financial key ratios like P/E Ratio, Capital Gearing and Net Profit ratio. She feels that investing in new and
growth companies and in technology and pharmaceutical companies has more growth potential. The Indian
markets have a strong efficient market hypothesis and is driven by sentiment.
 SECONDARY DATA

CHAPTER 1

WHAT IS FUNDAMENTAL ANALYSIS?

Fundamental analysis is the process of looking at a business at the most basic or fundamental financial level.
This type of analysis examines the key ratios of a business to determine its financial health and it can give
you an idea of the value of its stock. It takes several factors into account, including revenue, asset
management, and the production of a business as well as interest rate.

Many investors use fundamental analysis alone, but it can be particularly helpful to use it in combination
with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth of the
stock, and, perhaps more important, to identify how the market values the stock.

Fundamental analysis, like technical analysis, attempts to predict which stocks are valuable and which are not.
According to its proponents, fundamental analysis offers a fuller picture of the possible movements of both
the stock market and individual stocks because as many elements as possible are investigated. Technical
analysis, on the other hand, only looks at past data of stock prices. Perhaps the greatest argument in favour
of fundamental analysis can be made by observing the success of one of its most famous proponents: Warren
Buffett.

Fundamental analysis includes:

1. Economic analysis
2. Industry analysis
3. Company analysis

The intrinsic value of the shares is determined based upon these three analyses. It is this value that is
considered the true value of the share. If the intrinsic value is higher than the market price, buying the share
is recommended. If it is equal to market price, it is recommended to hold the share; and if it is less than the
market price, then one should sell the shares.
 CHAPTER 2

ECONOMIC ANALYSIS

Every common stock is susceptible to the market risk. This feature of almost all types of common
stock indicates their combined movement with the fluctuations in the economic conditions towards the
improvement or deterioration.

Stock prices react favourably to the low inflation, earnings growth, a better balance of trade, increasing
gross national product and other positive macroeconomic news. Indications that unemployment is rising,
inflation is picking up or earnings estimates are being revised downward will negatively affect the stock
prices. This relationship is reasonably reliable that the Indian economy is better represented by the Nifty 50
stock index, which is popular market indicator. The stock market will forecast an economic boom or
recession properly from the signs in front of average citizen. A research describes that the slope of the yield
curve is the perfect indicator of the economic growth more than three months out. Recession is indicated by
negative slope while positive slope is considered as good one.

The implications of market risk should be clear to the investor. When there is recession in the economy, the
prices of stocks move downward. All the companies suffer the effects of recession despite of the fact that
these are high performing companies or low performing ones. Similarly, the stock prices are positively
affected by the boom period of the economy.

Economic related factors are:

 GDP
 Inflation
 Interest Rates
 Tax structure
 Balance of Payment
 Demographic factors
 Overall rate of growth
 Government Budget
 Economic forecasts
 CHAPTER 3

INDUSTRY ANALYSIS

Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks for
developing an organization’s strategy. One of the most renowned among managers making strategic
decisions is the five competitive forces model that determines industry structure. According to Porter, the
nature of competition in any industry is personified in the following five forces:

 Threat of new potential entrants

 Threat of substitute product/services
 Bargaining power of suppliers
 Bargaining power of buyers
 Rivalry among current competitors
The five forces mentioned above are very significant from point of view of strategy formulation. The
potential of these forces differs from industry to industry. These forces jointly determine the profitability of
industry because they shape the prices which can be charged, the costs which can be borne, and the
investment required to compete in the industry. Before making strategic decisions, the managers should use
the five forces framework to determine the competitive structure of industry.

The factors under Industry Analysis are:

 Growth rate of industry
 Nature of product
 Nature of competition
 Government programs and projects
 Subsidies, incentives and concessions
 Tax framework
 Import and export policies
 State of technology
 Industrial policies
 Industry life cycle
 SWOT Analysis
 Socio-demographic trends
 Type of industries: Growth, Cyclical, Defensive and Cyclical growth industries
 CHAPTER 4

COMPANY ANALYSIS

In company analysis different companies are considered and evaluated from the selected industry so that
most attractive company can be identified. Company analysis is also referred to as security analysis in which
stock picking activity is done. Different analysts have different approaches of conducting company analysis
like

1. Value Approach to Investing

2. Growth Approach to Investing

Additionally in company analysis, the financial ratios of the companies are analyzed in order to ascertain
the category of stock as value stock or growth stock. These ratios include price to book ratio and price-
earnings ratio. Other ratios like return on equity etc. can also be analyzed to ascertain the potential company
for making investment.

The factors under Company Analysis are:

 Competitive advantage
 Market share
 Growth rate
 Corporate image
 Profits of the company
 Financial stability and performance
 Future estimates of sales, management and profits
 Operating efficiency
 CHAPTER 5

TOP DOWN APPROACH

Investors using a top-down investing approach start their analysis by looking at macroeconomic factors
before working their way down to individual stocks.

For example, a top-down investor might start their analysis by looking at what countries have the fastest
growing economies. Then, they might look at individual sectors within these economies to find the best
opportunities. Finally, they will look at individual companies within these specific sectors before actually
making an investment decision. The investor might also look at other macroeconomic factors as well, such
as economic or business cycles.

Most top-down investors are macroeconomic investors focused on capitalizing on large trends
using exchange-traded funds (ETFs) rather than individual equities. They tend to have higher turnover than
bottom-up investors since they’re more focused on market cycles than individual stocks. This means that
they’re strategy is more about momentum and short-term gains than any kind of value-based approach to
finding undervalued companies.

Top-down investors benefit from access to a diversified portfolio of assets within a given country, region, or
sector since they use funds for exposure. The primary drawback is that they have relatively little control over
the ultimate make-up of their portfolio unless they invest in individual equities or bonds. Their portfolio may
also have concentration risks if they’re focused on specific countries or sectors rather than diversification.
 CHAPTER 6

BOTTOM UP APPROACH

Investors using a bottom-up approach start their analysis by looking at individual companies and then
building a portfolio based on their specific attributes.

For example, a bottom-up investor might screen for stocks trading with a low price-earnings (P/E) ratio and
then review companies that meet that specific criteria. Then, they will take a deeper look at each individual
company that comes up on the screener and evaluate them based on other fundamental criteria. The investor
may also rely on external factors, such as reading analyst research reports and opinions for added insight.

Most bottom-up investors are microeconomic investors that focus on specific attributes of a company when
building their portfolio. They tend to be buy-and-hold investors since they invest a lot of time researching
individual stocks rather than the environment surrounding these stocks. This means that their investments
may take a longer time to play out, but could be more effective at managing risk and ultimately increasing
risk- adjusted returns.

Bottom-up investors benefit from a portfolio that’s often well-diversified in terms of industry and geography
and they know that every component of their portfolio meets their investment goals. The downside is that
underlying attributes they’re screening for must produce above-market returns in order for them to be
successful. For example, it’s possible that low P/E ratios alone will not outperform the S&P 500 benchmark
index over the long run.
What’s the Best Approach?

There is no single approach that’s right for all investors and the decision between top-down or bottom-up
investing is largely a matter of personal preference. But it’s worth noting that these two investment styles are
not mutually exclusive.

Many investors combine top-down and bottom-up investing when building a diversified portfolio. For
example, an investor might start with a top-down approach and look for a country that’s likely to see rapid
growth over the coming year or two. They might then take a bottom-up approach within that country by
looking for specific investments, such as companies with low price-earnings ratios or high yields.

The key to successfully using these techniques is identifying the correct criteria and analysing them in a
wider context. For instance, if price-earnings ratios are depressed in a specific country, it could be due to a
larger macroeconomic risk factor, such as an upcoming election or conflict. Investors must carefully
consider all of these factors when making investment decisions to avoid making any costly mistakes.

- 50 - | P a g e
 CHAPTER 7

FINANCIAL STATEMENTS

I. PROFIT AND LOSS STATEMENT/ INCOME STATEMENT

The income statement is basically the first financial statement you will come across in an annual report
or quarterly Securities And Exchange Commission (SEC) filing.

It also contains the numbers most often discussed when a company announces its results - numbers such
as revenue, earnings and earnings per share. Basically, the income statement shows how much money
the company generated (revenue), how much it spent (expenses) and the difference between the two
(profit) over a certain time period.
When it comes to analyzing fundamentals, the income statement lets investors know how well the
company's business is performing - or, basically, whether or not the company is making money. Generally
speaking, companies ought to be able to bring in more money than they spend or they don't stay in business
for long.
Those companies with low expenses relative to revenue - or high profits relative to revenue - signal
strong fundamentals to investors.
Profits = Revenue - Expenses
You can gain valuable insights about a company by examining its income statement. Increasing sales offers
the first sign of strong fundamentals. Rising margins indicate increasing efficiency and profitability. It's
also a good idea to determine whether the company is performing in line with industry peers and
competitors.
Look for significant changes in revenues, costs of goods sold and SG&A to get a sense of the
company's profit fundamentals.
 II. BALANCE SHEET

The balance sheet, also known as the statement of financial condition, offers a snapshot of a company's
health. It tells you how much a company owns (its assets), and how much it owes (its liabilities). The
difference between what it owns and what it owes is its equity, also commonly called "net assets" or
"shareholders equity".

The balance sheet tells investors a lot about a company's fundamentals: how much debt the company has,
how much it needs to collect from customers (and how fast it does so), how much cash and equivalents it
possesses and what kinds of funds the company has generated over time.
Assets, liability and equity are the three main components of the balance sheet.

Example: Vasanth Limited had taken a loan of Rs. 200 lakhs on 1 December 2009 which was repayable on 1
April 2010. On 31 March 2010, its Balance Sheet was as follows:

Current assets include cash of Rs. 200 lakhs to repay the loan. Vasanth Ltd. did repay the loans, as
promised on 1 April 2010. Its Balance Sheet after the repayment read:

An investor reviewing the Balance Sheets would be forgiven for drawing two very different conclusions. At
31 March 2010, Vasanth Limited would be considered a highly leveraged company, one financed by
borrowings. On 1 April 2010, on the other hand, it would be concluded that the company was very
conservative and undercapitalized, as a consequence of which its growth would be limited.
 III. CASH FLOW STATEMENT

The cash flow statement shows how much cash comes in and goes out of the company over the quarter or
the year. At first glance, that sounds a lot like the income statement in that it records financial performance
over a specified period. But there is a big difference between the two.

What distinguishes the two is accrual accounting, which is found on the income statement. Accrual
accounting requires companies to record revenues and expenses when transactions occur, not when cash is
exchanged. At the same time, the income statement, on the other hand, often includes non-cash revenues or
expenses, which the statement of cash flows does not include.

It shows how much actual cash a company has generated; the statement of cash flows is critical to
understanding a company's fundamentals. It shows how the company is able to pay for its operations and
future growth.

Indeed, one of the most important features you should look for in a potential investment is the company's
ability to produce cash. Just because a company shows a profit on the income statement doesn't mean it
cannot get into trouble later because of insufficient cash flows. A close examination of the cash flow
statement can give investors a better sense of how the company will fare.

The cash flow statement is divided into three sections: cash flows from:

Operating
activities
Financing
activities Investing
activities

The most common method of calculating free cash flow is:

 IV. OTHER IMPORTANT SECTIONS FOUND IN
FINANCIAL FILINGS

The financial statements are not the only parts found in a business's annual and quarterly SEC filings.
Here are some other noteworthy sections:

Management Discussion and Analysis (MD&A)

As a preface to the financial statements, a company's management will typically spend a few pages
talking about the recent year (or quarter) and provide background on the company. This is referred to as
the management discussion and analysis (MD&A). In addition to providing investors a clearer picture of
what the company does, the MD&A also points out some key areas in which the company has
performed well.
Here are some things to look out for:

 How candid and accurate are management's comments?

 Does management discuss significant financial trends over the past couple years? (As we've
already mentioned, it can be interesting to compare the MD&As over the last few years to see how
the message has changed and whether management actually followed through with its plan.)
 How clear are management's comments? If executives try to confuse you with big words and
jargon, perhaps they have something to hide.
 Do they mention potential risks or uncertainties moving forward?


Disclosure is the name of the game. If a company gives a decent amount of information in the MD&A, it's
likely that management is being upfront and honest. It should raise a red flag if the MD&A ignores
serious problems that the company has been facing.

The Auditor's Report

The auditors' job is to express an opinion on whether the financial statements are reasonably accurate and
provide adequate disclosure. This is the purpose behind the auditor's report, which is sometimes called
the "report of independent accountants".
By law, every public company that trades stocks or bonds on an exchange must have its annual
reports audited by a certified public accountants firm. An auditor's report is meant to scrutinize the
company and identify anything that might undermine the integrity of the financial statements.
The typical auditor's report is almost always broken into three paragraphs and written in the
following fashion:

Independent Auditor\'s Report

Paragraph 1
Recounts the responsibilities of the auditor and directors in general and lists the
areas of the financial statements that were audited.
Paragraph 2
Lists how the generally accepted accounting principles (GAAP) were applied,
and what areas of the company were assessed.
Paragraph 3
Provides the auditor\'s opinion on the financial statements of the company being
audited. This is simply an opinion, not a guarantee of accuracy.

The Notes to the Financial Statements

Just as the MD&A serves an introduction to the financial statements, the notes to the financial statements
(sometimes called footnotes) tie up any loose ends and complete the overall picture. If the income
statement, balance sheet and statement of cash flows are the heart of the financial statements, then the
footnotes are the arteries that keep everything connected. Therefore, if you aren't reading the footnotes,
you're missing out on a lot of information.

The footnotes list important information that could not be included in the actual ledgers. For example,
they list relevant things like outstanding leases, the maturity dates of outstanding debt and details on
compensation plans, such as stock options, etc.

The majority of investors and analysts read the balance sheet, income statement and cash flow statement
but, for whatever reason, the footnotes are often ignored. What sets informed investors apart is digging
deeper and looking for information that others typically wouldn't. No matter how boring it might be, read
the fine print - it will make you a better investor.
 CHAPTER 8

RATIO ANALYSIS AND INTERPRETATION

Financial ratios are mathematical calculations using figures mainly from the financial statements, and they
are used to gain an idea of a company's valuation and financial performance. Some of the most well-
known valuation ratios are price-to-earnings and price-to-book. Each valuation ratio uses different
measures in its calculations. For example, price-to-book compares the price per share to the company's
book value.
The calculations produced by the valuation ratios are used to gain some understanding of the company's
value. The ratios are compared on an absolute basis, in which there are threshold values. For example, in
price-to-book, companies trading below '1' are considered undervalued. Valuation ratios are also
compared to the historical values of the ratio for the company, along with comparisons to competitors and
the overall market itself.

Ratios express mathematically the relationship between performance figures and / or assets / liabilities in a
form that can be easily understood and interpreted. Otherwise, one may be confronted by a battery of figures
that are difficult to draw meaningful conclusions from. It should be noted that figures by themselves do not
enable one to arrive at a conclusion about a company’s strength or performance. Sales of Rs. 500 crore a
year or a profit of Rs. 200 crores in a year may appear impressive but one cannot be impressed until this is
compared with other figures, such as the company’s assets or net worth or capital employed. It is also
important to focus on ratios that are meaningful and logical. Otherwise, no useful conclusion can be arrived
at. A ratio expressing sales as a percentage of trade creditors or investments is meaningless as there is no
commonality between the figures. On the other hand, a ratio that expresses the gross profit as a percentage
of sales indicates the mark up on cost or the margin earned.

No Single Ratio Tells the Complete Story:

There is no point in computing just one ratio as it will not give the whole picture but just one aspect. It is
only when the various different ratios are calculated and arranged that the complete state of a company
emerges and it is important that an investor has as much information as possible before he actually
invests. Ratios can be broken down into four broad categories:
Liquidity Ratio
Solvency Ratio
Profitability
Ratio Activity
Ratio
 LIQUIDITY RATIO
A company’s liquidity is its ability to meet its short-term financial obligations. Liquidity ratios attempt
to measure a company's ability to pay off its short-term debt obligations. This is done by comparing a
company's most liquid assets, those that can be easily converted to cash, with its short-term liabilities.

In general, the greater the level of coverage of liquid assets to short-term liabilities the better. A company
with a low coverage rate should raise a red flag for investors as it may be a sign that the company will have
difficulty meeting its short-term financial obligations, and consequently in running its day-to-day
operations.

During hard times for the business or the economy, a company with insufficient liquidity might be forced to
make tough choices to meet their obligations. These could include liquidating productive assets, selling
inventory or even a business unit. These moves could prove detrimental to both the company’s short-term
viability and their long-term financial health.

Liquidity ratios are based on different portions of the company’s current assets and current liabilities
taken from the firm’s balance sheet.

I. CURRENT RATIO

The current ratio measures the ability of a company to cover its short-term liabilities with its current

assets. The formula is:

Current Ratio: Current assets

Current liabilities

Where,
Current Assets = Stock, Debtor, Cash and bank, receivables, loan and advances, and other current
assets. Current Liability = Creditor, Short-term loan, bank overdraft, outstanding expenses, and other
current liability
As an example, a company with $10 million in current assets and $5 million in current liabilities would have
a current ratio of 2.0 times. Generally, 2:1 is treated as the ideal ratio, but it depends on industry to industry.
Analysis:
A current ratio of 1.0 or greater is an indication that the company is well-positioned to cover its current
or short-term liabilities.
A current ratio of less than 1.0 could be a sign of trouble if the company runs into financial difficulty.

However, if the ratio is very high it may indicate that certain current assets are lying idle and not being
utilized properly. So, maintaining the correct balance between the two is crucial.
 II. QUICK RATIO / ACID TEST RATIO
This ratio is the best measure of the liquidity in the company. This ratio is more conservative than the
current ratio. The quick asset is computed by adjusting current assets to eliminate those assets which are not
in cash. Generally, 1:1 is treated as an ideal ratio. Inventory and Prepaid expenses are generally excluded
from Current assets.

The formula is:

Quick Ratio: Quick assets

Quick liabilities

Where,
Quick Assets = Current Assets – Inventory – Prepaid Expenses
Quick Liabilities = Current Liabilities – Bank Overdraft – Cash Credit

Analysis:
Since it does not take into consideration stock (which is one of the biggest current assets for most firms) it is
a stringent test of liquidity. Many firms believe it is a better test of liquidity than the current ratio since it is
more practical.

III. ABSOLUTE CASH RATIO

This ratio measures the total liquidity available to the company. This ratio only considers marketable
securities and cash available to the company to meet the short-term commitment of the firm. This ratio
only tests short-term liquidity in terms of cash, marketable securities, and current investment.

The formula is:

Absolute Cash Ratio: Cash + Marketable securities + Bank balance

Current liabilities

There is no ideal ratio, it helps the management understand the level of cash availability of the firm and make
any changes required.

IV. BASIC DEFENSE RATIO

This ratio measures the no. of days a company can cover its Cash expenses without the help of
additional financing from other sources. The formula is:

Basic Defence Ratio: 365 x Cash + Marketable securities + Bank balance

Operating expenses + Interest + Taxes
 LEVERAGE / SOLVENCY RATIO

This ratio focus on the long-term solvency of the company with regards to how much capital comes in
the form of debt or assessing the ability of the company to meet its financial obligation. We can also say
that this ratio measures long-term stability and structure of the firm.
This ratio helps the company to determine how much amount they can borrow so as to increase the
profitability of the company. This ratio also helps in determining the quantum of debt that can be borrowed.
Liquidity ratios compare current assets with current liabilities, i.e. short-term debt. Whereas solvency ratios
analyse the ability to pay long-term debt.

A. CAPITAL STRUCTURE RATIO

This ratio provides details about which type of financing to be used so as to focus on long-term
solvency position of the company.

I. DEBT TO EQUITY RATIO

This ratio measures the long-term debt of a firm in comparison to its total capital employed. So, the debt
ratio will measure the liabilities (long-term) of a firm as a percent of its long-term assets. It indicates the
financial leverage of the firm. A low ratio points to a more financially stable business, better for the creditors.

A higher ratio points to doubts about the firm’s long-term financial stability.

The formula is:

Debt to Equity Ratio: Long term debt

Shareholders’ funds

Where,

Long Term Debt = Debentures + Long Term Loans

Shareholders’ Funds = Equity Share Capital + Preference Share Capital + Reserves – Fictitious Assets

A high ratio indicates a risky business where there are more creditors of the firm than there are investors. In
fact, a high debt to equity ratio may deter more investors from investing in the firm, and even deter creditors
from lending money.

While there is no industry standard as such it is best to keep this ratio as low as possible. The maximum
a company should maintain is the ratio of 2:1, i.e. twice the amount of debt to equity.
II. DEBT RATIO

This ratio measures the long-term debt of a firm in comparison to its total capital employed. Alternatively,
instead of capital employed, we can use net fixed assets. So, the debt ratio will measure the liabilities (long-term)
of a firm as a percent of its long-term assets.

The formula is:

Debt Ratio: Long term debt or Long-Term Debt

Capital Employed Net Assets

Where,
Capital Employed = Long Term Debt + Shareholders Funds
Net Assets = Non-Fictitious Assets – Current Liabilities
This is one of the more important solvency ratios. It indicates the financial leverage of the firm. A low ratio
points to a more financially stable business, better for the creditors. A higher ratio points to doubts about the
firm’s long-term financial stability. But a higher ratio helps the management with trading on equity, i.e. earn
more income for the shareholders. Again, there is no industry standard for this ratio.

III. PROPREITARY RATIO / EQUITY RATIO

This ratio indicates total owner contribution in the company. This ratio shows the comparison
between owners’ funds and total capital or net assets.

Th formula is:

Equity Ratio: Shareholders funds or Shareholders funds

Capital Employed Net Assets

Where,
Shareholders Equity = Equity share capital + Reserve and Surplus
Total Capital Employed = Shareholders Equity + Debentures + Long-Term Loan
A high ratio is a good indication of the financial health of the firm. It means that a larger portion of the total
capital comes from equity. Or that a larger portion of net assets is financed by equity rather than debt. One point
to note, that when both ratios are calculated with the same denominator, the sum of debt ratio and the proprietary
ratio will be 1.
- 60 - | P a g e
 B. COVERAGE RATIOS

Coverage ratio provides details about which type of financing to be used so as to focus on long-
term solvency position of the company.

IV. INTEREST COVERAGE RATIO

This ratio will measure the security of this interest payable on long-term debt. It is the ratio between the profits
of a firm available and the interest payable on debt instruments. It is used by the lenders to check whether the
company will be able to pay off interest due on the instalment on time or not.

The formula is:

Interest Coverage Ratio: Net profit before interest and tax

Interest on long term debt

A high ratio means the company can easily meet its interest obligation. A low ratio indicates
inefficient operation.

V. DEBT SERVICE COVERAGE RATIO

At the time of leveraging, lenders/banks use this ratio to know whether the company will be able to pay
their dues in due course or not. Generally, 1.5 to 2 is treated as an ideal ratio.
The formula is:

Debt Service Coverage Ratio: Earnings available for debt service

Interest + Instalment of debt

Where,
Earnings Available for debt service = Net Profit after Tax + Non-cash expenditure + Interest
+ other abnormal adjustment

VI. CAPITAL GEARING RATIO

This is an important tool used to check the capital structure of the company. This ratio describes the
relationship between the owner’s capital and the amount borrowed by the company on which
periodic payment is made.

Capital Gearing Ratio: Preference share capital + Debentures + Long term loan
Equity share capital + Reserve and surplus
 PROFITABILITY RATIO

The profitability ratios help the management determine an entity’s ability to use its assets and create
earnings. The most useful comparisons for these ratios is to the performance of the previous years.

Profitability ratios are both revenue statement ratios and balance sheet ratios. They compare the revenue of
a firm to different types of expense accounts within the Profit and Loss Statement. And then some
profitability ratios also compare revenue to aspects of the balance sheet such as assets and equity.

Profitability represents final performance of company i.e. how profitable company. It also represents
how profitable owner’s funds have been utilized in the company.

I. GROSS PROFIT RATIO

This ratio simply compares the gross profit of a company to its net sales. Both of these figures are obtained
from the Income Statement. The ratio is represented as a percentage of sales.
This ratio basically signifies the basic profitability of the firm. It shows the margin in the selling price before the
company will incur losses from operations.
The formula is:

Gross Profit Ratio: Gross Profit x 100

Net Sales

Where,
Net Sales = Sales – Sale Returns
Gross Profit = Sales – Cost of Sales
A high ratio represents the greater profit margin and it’s good for the company.

II. NET PROFIT RATIO

This ratio helps measure the overall profitability of the firm. It indicates the portion of the net revenue that is
available to the proprietors. It also reflects on the efficiency of the business and is a very important ratio for
investors and financiers. It takes into account both the operating income as well as the non-operating income.
The formula is:

Net Profit Ratio: Net Profit x 100

Net Revenue

Where,
Net Profit = Gross Profit + Indirect Income – Indirect

Expenses A high ratio represents a positive return in the

company
III. EARNINGS PER SHARE (EPS)

This ratio represents the profit or the earnings of a company in the context of one share. It represents the
earnings of a firm whether or not dividends were actually declared on such shares. This ratio measures
profitability from the point of view of the ordinary shareholder.
The formula is:

Earnings per share: Profit available to Equity Shareholders

Number of equity Shareholders

Where,
Profit available to Equity Shareholders = NPAT – Preference Dividend

A high ratio represents better the company is. This is an important ratio for the shareholders, it helps them
decide whether to hold onto the shares or sell them. It also is a good indicator of the dividends to be
declared and/or bonus issues.

IV. PRICE TO EARNINGS RATIO (P/E RATIO)

This ratio is used by the investor to check the undervalued and overvalued share price of the company.
This ratio also indicates Expectation about the earning of the company and payback period to the investors.
The price earnings ratio shows what the market is willing to pay for a stock based on its current earnings.
Investors use this ratio to decide what multiple of earnings a share is worth. In other words, how many
times earnings they are willing to pay.
The formula is:

Price to Earnings Ratio: Market Price per share

Earnings per share

Analysis:
A company with a high P/E ratio usually indicated positive future performance and investors are willing
to pay more for this company’s shares.
A company with a lower ratio, on the other hand, is usually an indication of poor current and
future performance.

V. DIVIDEND PER SHARE (DPS)

This ratio measures the amount of dividend distributed by the company to its shareholders. The high
ratio represents that the company is having surplus cash.
The formula is:

Dividend Per Share: Amount distributed to shareholders

Number of shares outstanding
VI. RETURN ON CAPITAL EMPLOYED (ROCE)

It measures the overall efficiency of the utilization of the firm’s funds. The ratio explores the relationship
between the total income/profit earned by a firm and the total capital employed by the firm, or the total
investment made.
The formula is:

Return on Capital Employed: Profit before Income and Tax x 100

Capital Employed

This ratio computes percentage return in the company on the funds invested in the business by its owners.
A high ratio represents better the company is.
This ratio measures the efficiency with which the capital is being utilized and it indicates the productivity of
the capital employed. It is a good tool to measure the overall profitability of the firm as well.

VII. RETURN ON ASSETS (ROA)

This ratio measures the earning per rupee of assets invested in the company. A high ratio represents
better the company is.
The formula is:

Return on Assets: Net profit

Total Assets

VIII. RETURN ON EQUITY (ROE)

This ratio measures Profitability of equity fund invested the company. It also measures how profitably
owner’s funds have been utilized to generate company’s revenues. A high ratio represents better the
company is.
The formula is:

Return on Equity: Profit after tax

Net worth

Where,
Net worth = Equity share capital, and Reserve and Surplus
 ACTIVITY RATIO

These ratios basically measure the efficiency with which assets are being utilized or managed. This is
why they are also known as productivity ratio, efficiency ratio or more famously as turnover ratios.
This ratio helps to understand how efficient the management of the company is. As this ratio measures
the efficiency of the utilization of assets of the company.

I. TOTAL ASSETS TURNOVER RATIO

This ratio measures the efficiency of the firm in utilizing its Assets. A high ratio represents
efficient utilization of total assets in generating sales.
The formula is:

Total assets turnover ratio: Net Sales

Total Assets

Higher turnover ratios mean the company is using its assets more efficiently. Lower ratios mean that the
company isn’t using its assets efficiently and most likely have management or production problems.
The asset turnover ratio is based on industry standards.

II. FIXED ASSETS TURNOVER RATIO

This ratio measures the efficiency of the firm in utilizing its Fixed Assets. A high ratio represents efficient
utilization of Fixed Assets in generating sales.
The formula is:

Fixed assets turnover ratio: Net Sales

Fixed Assets

A low turnover, on the other hand, indicates that the company isn’t using its assets to their fullest
extent. This concept is important to investors because they want to be able to measure an approximate
return on their investment.

III. CURRENT ASSETS TURNOVER RATIO

This ratio measures the efficiency of the firm in utilizing its Current Assets. A high ratio represents
efficient utilization of Current Assets in generating sales.
The formula is:

Current assets turnover ratio: Net Sales

Current Assets
IV. WORKING CAPITAL TURNOVER RATIO
This one of the activity ratios will measure the efficiency with which the firm is using their Working Capital
to support their sale volumes. So, any excess of current assets over the current liabilities of a firm is their
working capital.
The formula is:

Working Capital turnover ratio: Net Sales

Working Capital

A high Working Capital Turnover ratio means that the working capital is being very efficiently utilized. But
sometimes it could mean that the creditors of the company are excessive (bringing down the working capital)
and this could be a problem in the future. Conversely, a low ratio could mean that there are too many debtors or
a very big inventory which is not an efficient use of resources.

V. STOCK TURNOVER RATIO

One of the most important of the activity ratios is the stock turnover ratio. This ratio focuses on the
relationship between the cost of goods sold and average stock. So, it is also known as Inventory Turnover
Ratio or Stock Velocity Ratio.
The formula is:

Stock turnover ratio: Cost of goods sold

Average Inventory

Where,
Average Inventory= (Opening Stock + Closing Stock)/2

This ratio indicates how fast inventory/ Stock is consumed/ sold. A high ratio is good for the company. Low
ratio indicated that stock is not consumed/ sold or remains in a warehouse for a longer period of time. From
a managerial standpoint, this is an important ratio to calculate. It allows them to figure out their inventory
reordering schedule, by indicating when all the stock will run out. It also helps them analyse how efficiently the
stock and its reordering is being managed by the purchasing department.
VI. DEBTORS TURNOVER RATIO
This ratio helps the company to know the collection and credit policies of the firm. It measures
how efficiently the management is managing its accounts receivable. Hence it is also known as
‘Accounts Receivable Turnover ratio’. A high ratio represents better credit policy as compared to a
low ratio.
The formula is:

Debtors turnover ratio: Credit Sales

Average Debtors

Where,
Average Debtor = (Opening Debtor + Closing Debtor)/2

Higher efficiency is favourable from a cash flow standpoint as well. If a company can collect cash from
customers sooner, it will be able to use that cash to pay bills and other obligations sooner. Accounts
receivable turnover also is an indication of the quality of credit sales and receivables. A company with
a higher ratio shows that credit sales are more likely to be collected than a company with a lower ratio.

VII. CREDITORS TURNOVER RATIO

This ratio helps creditors analyse the liquidity of a company by gauging how easily a company can pay

off its current suppliers and vendors. This ratio is also the ‘accounts payable turnover ratio’.

The formula is:

Creditors turnover ratio: Credit Purchases

Average Creditors
Where,
Average Creditor = (Opening Creditor + Closing Creditor)/2

A higher ratio shows suppliers and creditors that the company pays its bills frequently and regularly. It also
implies that new vendors will get paid back quickly. A high turnover ratio can be used to negotiate
favourable credit terms in the future.
As with all ratios, the accounts payable turnover is specific to different industries. Every industry has
a slightly different standard. This ratio is best used to compare similar companies in the same industry.
 CASE STUDIES

BATA LTD.

Introduction

Bata India Limited, established in the year 1931, is the largest retailer and manufacturer of footwear in the
country. The production facilities are located strategically across the country and produces all kinds of
footwear. They have a strong Pan-India retail presence with more than 1,375 stores across cities. In recent
times, more large format stores are being added every year. Besides owned stores, Bata brand is also
available through a large network of dealers. Bata, the name, stands synonymous with quality and has
been the trustworthy footwear partner for the Indian consumers.
Bata as a brand has been very well known to the Indian consumer because of its long association with
the country - ~90 years. BIL has been trying to reposition its Bata brand to appeal to the young
generation.
For decades, Bata was synonymous with quality and comfort. Now, the legendary shoe brand has been
bestowed with one more accolade – Stylishly Ahead. And this is being reflected in the awe and admiration
of its consumers; old and new. To drive home this cool new image, Bata has teamed up with India’s
young style icons – Smriti Mandhana, the opener of the Indian Women’s Cricket Team, as the brand
ambassador for its iconic sports/fitness brand ‘Power’, and Kriti Sanon, the Bollywood diva, as the new
face of the brand, reaching out to modern Indian women. On the back of this momentum, the Company
opened many new stores in Tier-II and Tier-III towns across the country. At the same time, Bata India
took inspiration from the brand’s global retail concept, launching its internationally conceptualized ‘Red
Angela Store Concept’ in Kolkata and Delhi. Bata also made its presence felt in the Milan Fashion
Weekend, attracting fashion enthusiasts, influencers and ambassadors from all over the world.

Management Team

1) Mr Uday Khanna (Designation- Chairman and Independent Director)

 Non-Executive Chairman of Bata India Limited and he also serves on the Boards of Castrol India
Ltd., Pfizer Ltd., DSP BlackRock Investment Managers Pvt. Ltd., Pidilite Industries Ltd. and
Kotak Mahindra Bank Limited.

2) Mr. Rajeev Gopalakrishnan (Designation- Managing Director)

 With a rich experience of 28 years, he has previously handled the positions of the Director of
Wholesale Channels, Sales & Marketing with Bata International – Canada, and the Vice President
of Bata India Limited in Retail Operations and Wholesale Division.
3) Mr. Sandeep Kataria (Designation- Whole time director and Chief Executive Officer)
 Mr. Kataria was appointed as the Country Manager of Bata India Limited with effect from August 1,
2017. He was elevated to the Board of Directors of Bata India Limited with effect from November
14, 2017 as the Whole-time Director and Chief Executive Officer. He has been tasked with the
transformation of the footwear giant into a contemporary brand appealing to modern India.
The promoters together hold 53% stake of the company.

Shareholding Summary for Bata India Ltd.

Type Holding

Promoter 52.96

MF 16.86

FII 10.35

Other Institutions 5.49

Individual 14.34

Key Features:
 Bata India Ltd manufactures footwear for men, women and children.
 The company manufactures shoes of various quality- leather, rubber, canvas and PVC shoes.
 They own a lot of brands such as Hush Puppies, Marie Claire, North Star, Power, Dr
Scholls, Bubblegummers and Comfit.
 The key highlight is that Bata India Ltd is a debt free company.
 India is the largest market for Bata.
 In July 2018, there was a reduction in GST rate on such footwear from 18% to 5%. Under the
old regime, only footwear below Rs500/pair was eligible for 5% GST rate.

Expansion Plans:
 Bata will grow footprint in smaller cities via franchise route in 5 years.
 Goal of $1 billion dollars in 5 years
 Company will add 80-100 stores every year
 Currently there are 1500 Bata stores and out of that 150 are franchised outlets which are asset
light models so that expansion is faster.
Aim:
 Bata is a family store and now they want to reinvent and focus on sports, youth and women shoes.
 They will focus on the women shoe category which currently accounts for 40 % of the Bata sales
in India and now they want it to reach 50% and make the segment grow quicker.
 They’ve included famous personalities as brand ambassadors to rebuild image and target the
younger generation.
 Bata is also adapting to Digital media marketing.
 Their focus is on premiumization, fashion and comfort driven technologies.

Future Expectations:
 Earnings are expected to grow by 22.4%
 Annual growth rate of 16.21%
 EPS by 2021 is expected to be Rs. 28.29

(in crore) FY16 FY17 FY18

Revenue (In
Revenue 2418 2497 2636 Cr) 2,63
2,65
6
0
2,60
0 2,49
2,55 7
0 2,41
2,50 8
0
2,45
0
FY16FY17FY18
2,40
0
2,35
0
2,30
0

25 10
21 PAT & 22
(in crore) FY16 FY17 FY18 0
9 Margins 4 %
20 9%
PAT 219 159 224 0 15 8%
15 9 7%
MARGINS 9% 6% 8% 0 6%
5%
10 4%
0
3%
50 2%
1%
- FY16FY17FY18 - 70 - | P a g0%
e
PATMargins (%)
- 71 - | P a g e
 450 18%
EBITDA & Margins 405
400 375 16%
350 14%
303
300 12%
250 10%
200 8%
150 6%
(in crore) FY16 FY17 FY18 100 4%
50 2%
EBITDA 375 303 405
- 0%

MARGINS 16% 12% 15% FY16FY17FY18

EBITDAMargins (%)

Networth & ROE

1,60 16
(in crore) FY16 FY17 FY18 1,479
0 %
1,22 1,325
NETWORTH 1222 1325 1479 1,40
2
14
0 %
ROE 14% 12% 15% 1,20 12
0 %
1,00 10
0 %
800 8%
600 6%
400 FY16FY17FY18 4%
200 Net ROE 2%
worth (%)
- 0%

Valuation Estimation:
Why Investors Love Bata

Till about a decade ago, Bata shoes were considered old-fashioned with little style to draw younger
customers. Not anymore. The maker and retailer of namesake footwear brand slowly worked to shed that
image, with new designs targeting women and the young. More so in the last three years. The turnaround
reflects in the company’s financials with premium footwear now accounting for nearly a third of its sales,
improving margins. That helped win investor faith. Shares of Bata India surged 80 percent in the last 12
months compared with the 4 percent decline in the NSE Nifty 500 Index. It has returned nearly 180 percent
gains in the last three years and more than 3,000 percent in the past decade, making it a mega wealth
creator.

“We introduced new designs and styles in line with market trends, which were well accepted by our
customers,” Ram Kumar Gupta, chief financial officer at Bata India, said in a chat with BloombergQuint. He
said brand endorsement by younger film actors like Sushant Singh and Kriti Sanon has only added to its
appeal. Canada-based Bata, which traces its origins to 1897 in the erstwhile Czechoslovakia saw Alexis
Nassard take over as its new global chief executive officer in August 2016. Nassard, who considers India as
one of the groups most important markets, has been driving change. Sandeep Kataria took over as India
CEO in November 2017. RK Gupta had joined Bata in 1986 and has worked in different positions. The three
were instrumental in driving the change at the company, according to a report by Edelweiss Securities. Over
the last two to three years, Bata India has made its shoes more palatable to the young as well expanded
women’s line. The company sells products across categories through 1,400 stores in 550 cities.
Bata India’s product mix also changed with mid-premium and premium contributing about 30 percent of
its revenue.

Improving Margins
That, along with lower input costs, helped Bata India improve its margins and boost gross profit. That
was aided by a cut in goods and services tax from 18 percent to 5 percent on footwear priced below Rs
1,000. Spark Capital said controlled rental costs and better operating leverage also aided margin.
Source: Bloomberg Quint
Published on: March 1st,
2019
 MMP INDUSTRIES LTD.

INTRODUCTION:
 Formerly known as “Maharashtra Metal Powders Ltd”.
 MMPIL was established in 1983 near the central Indian city of Nagpur.
 MMP Industries is engaged in manufacturing of aluminium products at locations at and close to Nagpur
 Global player in the field of Aluminium powders and Aluminium pastes.
 Products are exported across the globe to countries in Europe, Middle-East, Africa and the Asia Pacific.
 Company’s aluminium product range includes pyro and flake aluminium powders, atomised
aluminium powders, aluminium pastes, aluminium conductors

MANAGEMENT TEAM:
1) Mr. Arun Bhandari (Designation: Whole-time director and CEO)
 Promoter, Chairman and Managing Director
 He has experience of more than 36 years in the manufacture of pyro technique aluminium
powder, paste and conductors and also manufacturing of circlips, retaining rings and other carbon
steel stampings and formed components.

2) Mr. Lalit Bhandari (Designation: Whole-time Director)

 Whole-time Director of the Company.
 Associated with the group of companies since 1981 and has worked at various positions and
has experience of about 35years in the aluminium powder and paste business.

3) Mr. Bhinvkaran Jangid (Designation: Whole-time Director)

 Whole-time Director of the Company.
 He has experience of about 25 years in handling accounts, customs and central excise and
import, export work.

QUALITY AND RESEARCH DEVELOPMENT

 MMPIL is accredited with ISO 9001-2008 quality certificate from TUV-SUD Germany and is
the preferred vendor in all the public and private enterprises it supplies to.
 Well-equipped In-House Laboratory for Chemical and Functional testing.
INFRASTRUCTURE

 MMPIL has an existing installed capacity of 11,000 Metric Tons per annum.
 These include atomized aluminium powder, flake aluminium powder and aluminium paste.
 The company uses the latest technology to manufacture high quality products in an efficient and safe
manner. This is done through constant up gradation and modifications of their machines and
processes

PRODUCTS AND ITS USES:

PRODUCT USES

Aluminium Powder (Pyro, Flake and Explosives (mining), Construction (AAC

Atomized) Blocks), Aluminium Phosphate
(pesticides), Pyro and flake (fireworks),
Agriculture

Aluminium Pastes Automotive, decorative and industrial

paints.

Aluminium Conductors Overhead transmission of power

Manganese Oxide Chemical Industries

Aluminium Foil Packaging in pharma and food

PRODUCT REVENUE SHARE:

REVENUE SHARE
Alumini Manganese
um
Oxide, 3%
Paste, 8%

Aluminium
Conductor, 28%
Aluminium
Powder, 61%
MARKET POSITIONING:

• 60-70% • 40-50%
Market
Market
Share Share
EXPLOSIVES CONCRETE

PASTES CONDUCTOR

60% Market Selling 5000 MTPA ;

Share; supplying good growth due to
to major paint Government focus on
infrastructure and
manufacturers electrification

INDUSTRIES THAT WILL DRIVE THE GROWTH OF MMP:

Mining Sector: Explosives industry directly correlates with the Mining Sector where Aluminium powder
which is used for making explosives products. Central India is the COAL MINING HUB OF INDIA,
where 80% of the coal resources are located in the 5 states of Central India. It is expected to grow at 10-
12% p.a. over 2016-19E.
Automobile industries – The Indian automotive aftermarket is estimated to grow at around 10-15% till
2021. It has the potential to generate up to Rs. 18 trillion in annual revenue by 2026, create 650 million
additional jobs and contribute over 12% to India ‘s Gross Domestic Product.
This will be growing the demand for aluminium paste which is used in automobile industry and their
joint venture with Toyo is going to manufacture paste which will be used by automobile companies.

Power sector – Indicating significant growth in the power transmission sector, the Central Electricity
Authority (CEA) has estimated an investment of Rs 2.6 trillion till 2022. And aluminium conductor
is generally used instead of copper this will create demand for aluminium conductor.

Real estate Industry – Government initiative for Housing for all by 2022 will surely grow the demand for
more building. The Indian real estate market is expected to touch Rs. 1080 trillion by 2020. This will
increase the chance of better and light weight bricks (ACC Blocks) to be used in our real estate sector so
as more of ACC Blocks are used it will increase the consumption of Aluminium powder which is used in
making ACC blocks.

MANUFACTURING CAPACITY EXPANSION:

 Company is constantly adding more capacities in all 3 segments i.e. Powder, Paste and Conductors,
it demonstrates that there is a growing demand of its products.
 MMP Industries has a total land bank of nearly 70 acres for its future expansion plans.

Expansio
1400 n
0

1200
0

1000
0

8000

6000

4000
Aluminu Aluminium Pyro Aluminium Aluminiu ManganeseAluminium Foil
2000
m Paste m Oxide
Atomized and Flake Conductor
0
Powder
Current Capacity After Expansion
(MTPA) (MTPA)
 MMP Industries is expanding the Atomised Powder Capacity by 4,800 MTPA with technical
assistance from Toyo Japan, and Aluminium Pyro & Flake powders by 1,800 MTPA, commercial
production of which will start from to commence from Q1FY19.
 A new plant of Aluminium Foils with the installed capacity of 5,000 MTPA will also be set up which
is expected to commence operations by Q2 of 2019.
 Through the diversification into aluminium foils, MMP Industries will be manufacturing foils for use
in pharma packaging, flexible food packaging and foils for use in households. Aluminium foils will be
its first product to be directly used by consumers.

CAPACITY UTILIZATION:

Aluminium Powder Power Plant

INSTALLED CAPACITY (MTPA) CAPACITY UTILIZED (%)
Installed Capacity (MTPA) Capacity Utilization (%)
21660

97%

96%
96%
18060
15060

15060

15060

91%
87%

FY 16FY 17FY 18FY 19FY 20

FY 16FY 17FY 18FY 19FY 20

Aluminium Paste Power Plant

Installed Capacity CAPACITY

2000 (MTPA) UTILIZATION (%)
1500 1500 1500
1500
Capacity Utilized (%)
64%

60%

1000
54%

500

0
FY16 FY17 FY18

Installed Capacity (MTPA) FY 16 FY 17 FY 18

Aluminium Foil Plant

INSTALLED CAPACITY Capacity Utilization

(MTPA) 100% (%)
Installed Capacity (MTPA) 80%

5000
5000

60%
40%
2080

20%
0%
FY20FY21 FY22

FY 20 FY 21 FY 22 Capacity Utilized
(%)

KEY CUSTOMERS:
Despite being an SME, MMP’s clientele includes:
 Largest manufacturer of Industrial explosive
 Largest supplier of explosive to Coal India Ltd
 Top 3 AAC Block manufacturers
 Top 4 Alphos Manufacturers
 Largest Industrial Paint manufacturer

COMPETITIVE STRENGTHS:

 Experienced management and technical team

 Strong track record and financial stability
 Quality Assurance
 Diversified and Large Customer Base
 Domestic demand augurs well for the Company

BUSINESS STRATEGY:

 Continue to Grow Overall Market Share by Leveraging presence in Existing Business Verticals
 Expansion Plan and Diversification
 Competitive Pricing
 Enhancing Customer Base
 Investing in Advanced Technology
RISKS:
 Their products are manufactured in four facilities in Maharashtra and any slowdown or shutdown in
their manufacturing operations, or the under-utilization of manufacturing facilities could have an
adverse effect on their business, results of operations and financial condition.

 If the Aluminium prices show a lot of volatility, i.e, now the prices have doubled, this could lead
to slower demand for aluminium.
 The Aluminium Foil Plant was expected to start by May 2018 but has been delayed by two months and
is expected to start functioning by July 2018 due to permission issues. If there is a further delay in the
operation it might prove to be problematic for the company and investors as a lot of revenue generation
is expected from the Aluminium Foil Plant.

FUTURE PROSPECTIVES:
1) AAC Blocks Segment
 Red Bricks for construction have been banned by the Supreme Court.
 We are very bullish on the Autoclaved Aerated Concrete (AAC) Blocks as the Blocks are an eco-
friendly and sustainable construction building material made using non-polluting manufacturing process.
It makes productive use of recycled industrial waste (fly ash).
 China has over 1000 AAC Block manufacturing units whereas India still has just about 50.
 In INDIA, according to market analysis, currently AAC Blocks manufacturer only produce 20%
production as actually demanded in market. This proves that there would be high demand in near
future.
 The demand, in India, for AAC (Autoclaved Aerated Concrete) Blocks has risen by 10-fold in the last
5 years.
 MMP industries come in top 5 companies who produce aluminium powder in India.
 They have a strong opportunity to penetrate the South East Asian Market through Toyo Sales
Channel for AAC grade concrete powder markets.

2) Toyal MMP Pvt. Ltd.

 Japanese aluminium paste manufacturer Toyo Aluminium K.K. (“Toyal”) has entered into a joint
venture with India’s MMP Industries Ltd. to build a new manufacturing plant in central India.
 Toyo Aluminium K.K. manufactures and sells aluminium products. It offers foil products that are used
in various sectors, including food, medicines and chemical goods; and powder products, such as
aluminium alloy powders, aluminium nitride, and the company also offers paste products for various
applications, including automobiles, household electrical products and digital appliances, etc.

- 80 - | P a g e
 Aluminium paste is an important ingredient in paints, particularly those requiring a silvery colour.
India’s total yearly demand for the substance is 6,000 tons. Upon entering production, the
contemplated plant is expected to supply fully one half of the country’s demand.
 MMP Industries Limited holds 26% Equity Shareholding in the Toyal MMP India Pvt Ltd.
 There will be a shift of operations from France to India which would result in low cost and
efficiency and will improve the export prospects of the company. They will look to provide
aluminium paste demand of the whole world. Looking to become sole supplier to South Africa,
Europe & Middle East replacing French and Chinese companies.
3) Aluminium Foil
 The company is looking forward to expanding his business by increasing their production capacity
and bringing new product such as Aluminium foil generally for Pharma industry and foods.
 Aluminium foil has a huge growth potential in the ready to eat confectionaries and
pharmaceutical products and will start to give revenue from 2019-2020.
 Since plastic is being banned, growing emphasis on consumer convenience and eco-friendly
packaging and market expansion in emerging economies are other factors opening new opportunities
in the aluminium foil packaging market.

1) Capacity Utilization
 The company is constantly adding more capacities in Powder, Plant and conductors which shows
that there is a growing demand for its products.
 Almost reached full capacity in Atomized Powder and Aluminium Foil will start with 70%.

2) Pricing of the companies

 The price of Aluminium depends on the London Metal Exchange (LME) Pricing.
 The company passes on the cost of the increase or decrease of aluminium to its customers along with
the usual manufacturing costs, this way the company doesn’t bear the brunt of the volatility of the
aluminium prices.
 The company is able to do this within 5 working days and hence it doesn’t affect their margins.

3) Other Triggers

 The company is looking to collaborate with European company in upcoming year which will give
them strong holding in the global market as they are main export are in Middle East countries and
Europe.
 Indicating significant growth in the power transmission sector, the Central Electricity Authority
(CEA) has estimated an investment of INR 2.6 lakh crore till 2022.
 Passenger vehicle market in India is expected to cross 10 million units in FY 2019-20 compare to
3.8 million in 2016-17.
 In an Indian Explosives market, a vigorous volume growth (~10%-12% CAGR) is expected
during FY16-FY19E.

FINANCIAL PERFORMANCE:

Revenue (in million) & EBITDA Margin

Revenues grew at a CAGR of 18.2% over FY13-17 and expected to grow 20% in FY18 as per
management. EBITDA margin also improved over the years and currently enjoy 10.5%. Company
will maintain margin in double digit. MMP Industries caters to diversified base of customers with no
single customer with more than 10% of revenues.

PAT (in million Rs)

We can see that the company had shown a robust growth at bottom line in last 4 years. The company
had an exceptional item on their income statement in FY17 of around Rs 4.67 crore. We believe, in
FY18 company may post a PAT of Rs 18-20 crore and out of that it already reported PAT of Rs 8.06
crore in the first half of FY18.

- 82 - | P a g e
MMP VALUATION

- 83 - | P a g e
 CONCLUSION
Fundamental analysis holds that no investment decision should be made without processing and analysing
all relevant information. Its strength lies in the fact that the information analysed is real as opposed to
hunches or assumptions. On the other hand, while fundamental analysis deals with tangible facts, it does
tend to ignore the fact that human beings do not always act rationally. Market prices do sometimes deviate
from fundamentals. Prices rise or fall due to insider trading, speculation, rumour, and a host of other factors.
This is true to an extent but the strength of fundamental analysis is that an investment decision is arrived at
after analyzing information and making logical assumptions and deductions. This is why a lot of investors
prefer fundamental analysis over technical analysis which proves Ho of hypothesis number 1.
And this is where there can be differences in values — the assumptions made by different analysts would
differ. Their reasoning will be based on their exposure to the market, their maturity, their knowledge and
their gut feel of the market. Most investors majorly depend on market forecast as the most important factor
that influences decisions in making investments which proves Ho of hypothesis number 5. Furthermore,
fundamental analysis ensures that one does not recklessly buy or sell shares — especially buy. One would
buy a share only if its intrinsic value is higher than its book value. This also protects one against possible
loss since one would dispose of a share whose market value is higher than its intrinsic value. Price to
earnings ratio is a good indicator to measure intrinsic value which is proved by our hypothesis number 6.

Hence fundamental analysis supports and encourages safe investing and long term investing to provide long
term gains and Ho of hypothesis number 3 is correct.
Many investors invest in Equity Shares this shows that they are seeking dividend, capital appreciation as
well as bonus shares and this proves Ho of hypothesis number 2.

Risk and return are directly related. Lower the risk, lower will be the returns, while with high returns
comes high risk. As investors prefer investing in Equity shares to seek dividend and capital appreciation,
they expect high returns as equity shares are the most risky and volatile securities. Hence, Ho of hypothesis
number 4 is true that Investors consider high return as the most attractive element while investing.

Thus, while investing in a company, it is vital to understand what it does, the market and industry that it
operates in. An investing decision should be made only after carefully analysing the financial statements
and ratios of the company.
 BIBLIOGRAPHY

NEWSPAPER ARTICLES:

 https://www.dnaindia.com/business/column-fundamental-analysis-helps-you-know-if-the-stock-is-
undervalued-or-overvalued-2150474

 https://www.indiainfoline.com/article/news-personal-finance/analyze-your-stocks-like-a-pro-with-
fundamental-analysis-117042800575_1.html

 https://economictimes.indiatimes.com/wealth/invest/view-fundamental-analysis-is-critical-for-
stock- investing/articleshow/55907545.cms

 https://www.discoveroptions.com/mixed/content/education/articles/roleofnews.html?useHistory=1

WEB LINKS:

 https://www.thestreet.com/story/10365259/1/how-to-analyze-stock-fundamentals.html

 https://zerodha.com/varsity/chapter/introduction-fundamental-analysis/

 http://www.binarytribune.com/forex-academy/introduction-to-fundamental-analysis/

 https://bbamantra.com/fundamental-analysis-factors/

 http://www.businessstudynotes.com/finance/investment-analysis-and-portfolio-management/eic-
analysis-company/

 https://www.thebalance.com/bottom-up-vs-top-down-investing-comparison-4154879
 https://www.investopedia.com/university/fundamentalanalysis/fundanalysis10.asp
 https://www.myaccountingcourse.com/financial-ratios/earnings-per-share
 https://cleartax.in/s/liquidity-ratio
 https://www.toppr.com/guides/accountancy/accounting-ratios/liquidity-ratios/
 https://www.bloombergquint.com/markets/why-investors-love-bata#gs.180tk3
 APPENDIX
Dear Survey Respondent,
I am a student from H.R. College of Commerce and Economics and I'm undertaking this survey as a part
of my Bachelor of Management Studies academic project.
Your responses will be kept confidential. Thank you for participating in my survey.

Best Regards,
Geetika Bhatia

QUESTION 1:

What is your Gender?

o Male
o Female
o Other

QUESTION 2:

What is your Age?

o 18-29 years
o 30-39 years
o 40-49 years
o 50-59 years
o 60 years and above

QUESTION 3:

What is your Employment?

o Self employed
o Employed in a Private organization
o Employed in Government organization
o Student
o Homemaker
o Retired
o Other:
QUESTION 4:

What is your Income?

o Under Rs.5 lakhs p.a.
o Rs. 5-10 lakhs p.a.
o Rs. 10-20 lakhs p.a.
o Rs. 20-30 lakhs p.a.
o Rs. 30 lakhs and above
o Other:

QUESTION 5:
What is your Area of Residence?
o Metropolitan
o Urban
o Semi-urban
o Rural
o Other:

QUESTION 6:

Do you invest regularly in the stock markets?

o Yes
o No
o Sometimes
o Other:
QUESTION 7:
If yes, What type of investments?
o Equity Shares
o Debentures or Bonds
o Mutual funds
o Real estate Investment Trust (REITs)
o Life insurance and General Insurance
o Derivatives
o Gold and other commodities
o None
o Other:

QUESTION 8:
What percentage of your portfolio is invested in the equity market?
o Less than 25%
o 25% - 50%
o 51% - 75%
o More than 75%
o Not applicable

QUESTION 9:
Which analysis do you do, before investing in the stock market?
o Fundamental Analysis (Financials and news based)
o Technical Analysis (Charting)
o Both
o Not applicable

o OtH
- 90 - | P a g e
UESTION 14:
What are the various factors that influence your decision in making Investments?
o Broker
o Friends/Family/ Relatives
o Interest Rates
o Current news and News Channels (CNBC TV 18, Times Now, NDTV Profit, etc)
o Economic growth
o Market forecast
o Government policies
o Not applicable
o Other:

QUESTION 15:
Which ratios are important to you while investing in a company?
o Price-to-Earnings Ratio (P/E)
o Earnings-Per-Share (EPS)
o Dividend Yield
o Return on Equity (ROE)
o Profit Margin
o Debt to Equity Ratio
o Asset Turnover Ratio
o Not applicable
o Other:

QUESTION 16:
Which sectors do you prefer to invest in?
(Eg: IT, FMCG, Banking, Financial Services, Housing Finance, etc) (Write “NA” if not applicable)

QUESTION 17:
According to you, what will be the future of equity markets in India?
o Bullish
o Bearish
o Can't say
o Other