FUNDAMENTAL ANALYSIS
V/S
TECHNICAL ANALYSIS
PRESENTED BY: ROLL NO:
SNEHAL 01
ANUSHRI 31
RUPALI 14
KIRAN 32
SHWETA 59
FUNDAMENTAL ANALYSIS
• Fundamental analysis is a method of evaluating
securities by attempting to measure the intrinsic
value of a stock.
• Fundamental analysts study everything from the
overall economy and industry conditions to the
financial condition and management of
companies.
HOW DOES IT WORK?
• MARKET PRICE < INTRINSIC VALUE
Investor buys share.
• MARKET PRICE > INTRINSIC VALUE
Investor sells share.
E-I-C ANALYSIS FRAMEWORK
ECONOMY
INDUSTRY
COMPANY
ANALYSIS
ANALYSIS
ANALYSIS
FUNDAMENTAL ANALYSIS:
TWO APPROACHES
• Top - Down Approach
• Bottom - Up Approach
ECONOMY ANALYSIS
• If the economy is booming, industries and
companies tend to be prosperous.
• If the economy is in recession, performance of
the company will be bad.
• Economic variables gives idea about future
corporate earnings and payment of dividends
and interest to investors.
ECONOMIC FORECASTING
• Short Term Periods
• Intermediate Term Periods
• Long Term Periods
FORECASTING TECHNIQUES
• Anticipatory Surveys
• Barometric or Indicator Approach
• Money and Stock Prices
• Econometric Model Building
• Opportunistic Model Building
INDUSTRY ANALYSIS
INDUSTRY GROUP
S. No. Industries
1. Food Products
2. Beverages, Tobacco and Tobacco Products
3. Textiles
4. Wood and Wood Products
5. Leather and Leather Products
6. Rubber and Plastic Products
7. Chemical and Chemical Products
8. Non-metallic Mineral Products
9. Basic Metals, Alloys and Metal Products
10. Machinery and Machine tools
11. Transport Equipment and Parts
12. Other Miscellaneous Manufacturing Industries
PHASES OF BUSINESS CYCLE
Industries can be classified on the basis of the Business
Cycle:
• Growth Industry
• Cyclical Industry
• Defensive Industry
• Cyclical Growth Industry
INDUSTRY LIFE CYCLE
• Pioneering Stage
• Rapid Growth Stage
• Maturity and Stabilization Stage
• Declining Stage
FACTORS TO BE CONSIDERED
• Growth of the Industry
• Cost Structure and Profitability
• Nature of the Product
• Nature of the Competition
• Government Policy
• Labour
• Research and Development
COMPANY ANALYSIS
With a shortlist of companies, an investor might analyze
the resources and capabilities within each company to
identify those companies that are capable of creating and
maintaining a competitive advantage. The analysis could
focus on selecting companies with a sensible business
plan, solid management and sound financials.
FACTORS
Competitive edge of the company
• The market share
• The growth of annual sales
Earning
• Sales forecast
Capital structure
• Preference share
• Debt
– Earnings limit of debt
– Asset limit to debt
FACTORS
Management
Operating efficiency
• Operating leverage
Analysis of financial statement
• Balance sheet
• Profit & loss account
• Cash flow statement
• Fund flow statement
RATIO ANALYSIS
Liquidity Ratio
• Current Ratio (CR)
Current Assets
=
Current Liabilities
Quick (Acid-Test) Ratio (QR)
Current Assets - Inventory
=
Current Liabilities
Leverage Ratio
• Debt-equity ratio = Total debt
Net worth
• Debt- asset ratio = Total debt
Total asset
• Interest coverage ratio = Profit before interest and taxes
Interest
Turnover ratio
• Inventory turnover ratio : Net Sales/ Inventory
• Asset turnover ratio : Net Sales/Tangible Assets
• Fixed asset turnover ratio : Net Sales /Fixed Assets
• Current asset turnover ratio : Net Sales / Current Assets
Profitability ratio
• Net profit margin (NPM) = Net profit
Net sales
• Return on assets (ROA) = Net profit
Total Assets
• Return on equity (ROE) = Net profit
net worth equity
Valuation ratio
• Price/ Earnings Ratio (P/E) = Market Price Per Share
Earnings Per Share
• Earnings Per Share (EPS) = Earnings Available for Shareholder
Number of Shares Outstanding
• Market value to book value ratio = Market price per share
Book value per share
• Dividend to market price (Dividend yield) = dividend per share
market price per share
GOING BEYOND THE NUMBERS
• Availability and cost inputs
• Order position
• Regulatory framework
• Technological and production capabilities
• Marketing and distribution
• Finance and accounting
• Human resources and personnel
TECHNICAL ANALYSIS
• It is a study of market data in terms of factors affecting supply
& demand schedule, such as prices, volume of trading.
• The concept of technical analysis derive from the observation
of financial markets over hundreds of years ago.
• It is applicable to commodities, stocks, futures, foreign
exchange (forex), indices or any tradable instrument, the price
of which is influenced by supply and demand trends.
• Users of technical analysis are called as technicians or market
technicians & sometimes an older term, chartist is also used.
ASSUMPTIONS
• The price of security is related to demand & supply
factors operating in the market.
• Market action discounts everything.
• Prices move in trends.
• History tends to repeat itself.
CONCEPTS
• Dow Theory
- Proposed by Charles Dow
- One of the oldest technical method.
• Elliott Wave Principle
- Proposed by Ralph Nelson Elliott in 1930.
- Market prices unfold in specific patterns, which practitioners today call Elliott
waves, or waves.
• Support & Resistance Level
- A support level: price level where the price tends to find support as it is going
down.
- A resistance level: where the price tends to find resistance as it is going up.
• Systematic trading
- Neural networks
- Rule-based trading
CHARTING TECHNIQUES
1. Line Charts
This is the simplest
chart format and is
generated by using a
line to join the data
points .
2. Bar Charts
Bar charts use vertical bars to represent price action for
that day, drawn from the lowest price to the highest price .
High Price
closing price
Low Price
opening price
3. Candlestick Charts
It is a combination of a line-chart and a bar-chart, in that
each bar represents the range of price movement over a
given time interval.
4. Point & Figure Charts
• Does not plot price
against time as all other
techniques do.
• It plots price against
changes in direction by
plotting a column of Xs
as the price rises and a
column of Os as the
price falls.
CHART PATTERNS
1. Head and
Shoulders
It is a reversal chart
pattern that when
formed, signals
that the security is
likely to move
against the
previous trend.
2. Cup and Handle
A cup and handle chart is a bullish continuation pattern
in which the upward trend has paused.
3. Double Tops and Bottoms
This chart pattern is another well-known pattern that signals a
trend reversal - it is considered to be one of the most reliable
and is commonly used.
4. Triangles
5. Flag and Pennant
These two short-term chart patterns are continuation patterns
that are formed when there is a sharp price movement
followed by a generally sideways price movement.
TYPES OF TECHNICAL INDICATOR
• Trend indicators
• Momentum indicators
• Volume indicators
• Volatility indicators
TECHNICAL ANALYSIS
ADVANTAGES DISADVANTAGES
• Simple and straightforward • Rely on charts completely
• Make decisions by • Depend totally on the
examining market and assumption
security trends • Rules are often difficult to
• Assist in the basics of interpret
currency trading • Subjective judgment
• Uses historically based
information
• Prime concern is deciding
actual price
FUNDAMENTAL ANALYSIS
ADVANTAGES DISADVANTAGES
• Long-Term Investment • Data Intensive
Opportunities
• Labor Intensive
• Identifies the intrinsic value
of a security • Time Consuming
• Thorough understanding of • Valuation techniques vary
the business depending on the industry
group and specifics of each
• Stocks move as a group company
• Fair value is based on
assumptions
DIFFERENCE BETWEEN TECHNICAL &
FUNDAMENTAL ANALYSIS
Fundamental analysis Technical analysis
1. Analyses the stock based on specific goals 1. Analyses the stock based on past history
of the investors. of prices.
2. Fundamental analyst starts with the 2. Technical analyst approaches a security
financial statements. from the charts.
3. Long-term approach 3. Short term approach(weeks, days or even
minutes)
4. Long term value of shares 4. Short term price movement.
5. Supply & demand forecast depends on the 5. Supply & demand forecast depends on
underlying factors. studying the price and volume of trading.
CONCLUSION
• Although technical analysis and fundamental analysis
are seen by many as polar opposites many market
participants have experienced great success by
combining the two.
• Having both the fundamentals and technicals on your
side can provide the best-case scenario for a trade.
Thank You!!
