FUNDAMENTAL ANALYSIS

Presentation by: Zulaikha Panhwar

(Roll no# 2K20/DBBA/61)
Presentation outline

• What is fundamental analysis?

• Components of fundamental analysis
• What are the different types of fundamental analysis?
• What are the basics of fundamental analysis?
• How to do fundamental analysis?
• Top-down and bottom-up approach
• Why use fundamental analysis?
• Importance and benefits.

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What is Fundamental Analysis?

• Fundamental analysis is a method of assessing the intrinsic

value of a stock.

• It combines financial statements, external influences, events,

and industry trends.

• The ultimate goal of fundamental analysis is to quantify the

intrinsic value of a security

• Fundamental analysis aims to determine the “correct price” (true

value) of a security.

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• Many investment professionals consider fundamental
analysis to be the most important step in the investment
process. By examining a company’s financial health, future
growth prospects, the strength of its brand name and the
quality of the management team, you’ll be in a better position
to determine if the stock is underpriced, fairly priced or
overpriced.

• Fundamental analysis helps you identify key attributes of the

company and analyze its actual worth, taking into account
macro and microeconomic factors.

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Fundamental analysis uses three sets of data:

1. Historical data to check how things were in the

past
2. publicly known information about the
company, including announcements made by
the management and what others say about the
company
3. information that is not known publicly but is
useful, i.e., how the leadership handles crises,
situations, etc.

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For a stock, fundamental analysis typically includes reviewing
many elements related to stock prices, including:

Performance of the overall industry the company

participates in
Domestic political environment
Relevant trade agreements and external politics
The company’s financial statements
The company’s press releases
News releases related to the company and its
business
• Competitor analysis

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Components of Fundamental Analysis?

Fundamental analysis consists of three main parts:

Economic analysis
Industry analysis
• Company analysis

Fundamental analysis is an extremely comprehensive approach that

requires a deep knowledge of accounting, finance, and economics.
For instance, fundamental analysis requires the ability to read financial
statements, an understanding of macroeconomic factors, and
knowledge of valuation techniques. It primarily relies on public data,
such as a company’s historical earnings and profit margins, to project
future growth.

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What are the different types of Fundamental Analysis?

There are two main types of fundamental analysis:

• Qualitative: a study that involves brand value, management

decisions, the financial performance of the company over a
given period, and other similar factors.

• Quantitative: an analysis that is purely number-based and

considers the company’s financial statements and concludes
the share price from the observations.

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What are the basics of Fundamental Analysis?
Before conducting fundamental analysis of a stock, you need to
consider a few basic factors.
These factors are:

Company’s structure and revenue

Company’s profits over the years
Revenue growth over the years
Company’s debt
Corporate governance
• Rate of turnover

Analysts look at these six factors while conducting a fundamental

analysis of any security and determine its intrinsic value.

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How to do Fundamental Analysis?
Here are some necessary steps to start a fundamental
analysis of a company:

Understand the company, its operations, business model,

etc.
Use the financial ratios for initial screening.
Closely study the financial reports of the company.
Find the company’s competitors/rivals and study them.
Check the company’s debt and compare it with rivals.
• Analyze the company’s prospects.

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Top-down and bottom-up approach
The top-down approach starts
the analysis with the
consideration of the health of the
overall economy. By analyzing
various macroeconomic factors
such as interest rates, inflation,
and GDP levels, an investor tries
to determine the overall direction
of the economy and identifies the
industries and sectors of the
economy offering the best
investment opportunities.

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 The bottom-up approach
immediately dives into the
analysis of individual stocks.The
bottom-up approach is primarily
concentrated on various
microeconomic factors such as
a company’s earnings and
financial metrics. Analysts who
use such an approach develop
a thorough assessment of each
company to gain a better
understanding of its operations.

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Why use Fundamental Analysis?

• Investors who perform fundamental analysis believe

that thoroughly understanding a company and creating
an estimate of its value can lead to “buy low, sell higher”
opportunities.

• Warren Buffett, well-known for his value-style investing

success using fundamental analysis, has said: “Price is what
you pay, value is what you get.” The idea is to pay a low price
for something you believe has high value, in hopes the price
will later rise.

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• Longer-term investors tend to prefer fundamental analysis
because it emphasizes the strength and long-term potential of a
company. Value investors, like Warren Buffett, base their buy and
sell decisions on the intrinsic value estimates they create using
fundamental analysis.

You can think about what a stock is worth in a number of ways. For
example:

Consider the estimated future earning potential of the company

Evaluate how much the company would cost if another company
were to try to buy it.
• Compare key quantitative measures amongst similar companies
(referred to as industry peers) to get a sense of the company’s
worth.

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Importance and benefits
• Fundamental analysis of a company helps you get to its stock’s
fair price, which may not always be trading at its fair value. Often
it is overpriced or underrated.

• Fundamental analysis helps in predicting the long-term trends in

the market.

• It is generally used for long-term investments as it enables

you to understand the price that the stock should reach.

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• It also allows you to find good companies for investment,
such as those with strong growth potential.

• Additionally, the analysis helps with one of the most critical but
intangible factors – business acumen, which is highly beneficial in
investment analysis as it can tell you about the future of the
business.

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 ANY QUESTIONS
Glad to answer them

Thank you so much

for
your time.

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