SECURITY ANALYSIS
Ganesh Krishna,
[Link] Kumar,
[Link] Kumar,
[Link],
S. Balaji
Security analysis
Security analysis is about
valuing the assets, debt,
warrants, and equity of
companies from the perspective
of outside investors using
publicly available information.
Security analysis is useful in
understanding the fluctuations
of prices of securities and
behavior pattern of the market.
APPROACH TO SECURITY ANALYSIS
SECURITY
ANALYSIS
FUNDAMENTAL TECHNICAL
ANALYSIS ANALYSIS
COMOMIC INDUSTRY COMPANY
ANALYSIS ANALYSIS ANALYSIS
FUNDAMENTAL
ANALYSIS
It helps investors formulate expectations about the future
performance of the company and its stock
Fundamental analysis is based on the assumption that the
share price is determined by the fundamental factors
relating to economy ,industry and company.
Fundamental analysis consists of a detailed analysis of the
fundamental factors affecting the performance of the
company.
TECHNICAL ANALYSIS
It mainly focuses on internal market data and
determines the short term price movements of the
securities.
It identifies and recognizes the trend that comes to an
end when prices start moving in the opposite
direction.
It can be used as a supplement to fundamental
analysis.
CLASSIFICATION OF FUNDAMENTAL
ANALYSIS
Fundamental
analysis
economy industry company
ECONOMIC ANALYSIS
Economic analysis is a study of current and expected
future economic conditions.
The share price of the company depends upon the
performance of the industry and the economy.
The future corporate earnings and payment of
dividend and interest duly depends on the economic
factors.
Economic analysis (contd…)
GDP
GDP
R&D
R&D Inflation
Inflation
Economic
factors
Government
Government
Agriculture
Agriculture policy
policy
INDUSTRY ANALYSIS
It is an analysis of homogenous group of firms
engaged in similar business.
The performance of the company perhaps depends on
the performance of the industry to which it belongs.
So an industrial analysis should include the
fundamental factors affecting the growth prospects of
the industry.
Industry analysis (contd..)
Demand
Demand
&
&
supply
supply
Raw
Raw
material
material
Cost
Cost structure
structure Factors &
&
labour
labour
Attitude
Attitude of
of
govt
govt
INDUSTRY ANALYSIS (Contd..)
Industries are found to be in key sector , core sector
and export sector.
One must invest in those industries which has
demand for a whole year and not seasonally.
The correct time to buy shares of a company is during
the recovery period so that even a small investor can
gain from his investment.
Report card
Real Agenda
Attribute Value Date
PE ratio 22.92 23/07/10
EPS (Rs) 3.18 Mar, 10
Sales (Rs crore) 2,939.04 Mar, 10
Face Value (Rs) 1
Net profit margin (%) 5.66 Mar, 10
Last bonus 1:2 03/09/78
Last dividend (%) 150 29/04/10
Return on average
18.27 Mar, 10
equity
Company analysis
It is a study of those variables which influence the future
of the company , both qualitatively and quantitatively.
Company analysis involves the scrutiny of the company’s
financial and non-financial aspects with a view to
identify its SWOT.
It is also an analysis of the earnings and efficiency of the
company and the future prospects of the shareholders.
Company analysis (contd..)
Capital
structure
structure
profitability
profitability Factors management
management
Accounting
Accounting
polices
polices
Report card
Real Agenda
Attribute Value Date
PE ratio 17.52 23/07/10
EPS (Rs) 111.76 Mar, 10
Sales (Rs crore) 4,122.32 Mar, 10
Face Value (Rs) 2
Net profit margin (%) 10.30 Mar, 09
Last bonus 1:1 04/08/98
Last dividend (%) 1500 20/04/10
Return on average
33.72 Mar, 09
equity
RATIOS IN ANALYSING PERFORMANCE
Ratios signifies the relationship between two related
figures
• It’s the most appropriate tool to analyze the
performance
ratios
liquidity profitability leverage activity solvency financial
VALUATION MODELS
Valuation models were first laid down by Timbergen
and Williams.
Valuation models are developed to calculate share
prices and to find out the relationship between
dividends and interest rates.
They were further developed by Dodd, Bodenhorn,
Solomon & miller.
VALUATION MODELS
TIMBERGEN Model WILLIAM’S Model
Stock price varies directly
with dividends. n
Varies inversely with
P = ∑ R1/ (1 +K)t
interest rates. t=1
P = f(x , y , z)
P = share price, p = share price .
R1 = expected value of return.
x = long term interest rates,
K = discount rate.
y = dividend yield,
z = rate of charge.
VALUATION MODELS
GRAHAM DODD’S Model EZRA SOLOMON’S Model
The dividends of the firm Market value of a share is
determines market value of the sum of two discounted
the company’s equity. values.
P = M {D + E/ 3} + A P = V1 +V2
p = share price. p = market value of the firms
M = earnings of a company. share
D = dividend price. V1 = present value of the
E = EPS. earnings from current
A = adjustment for asset values. investments.
V2 = present value of earnings
of future investments.
TOP GAINERS..