FUNDAMENTAL

ANALYSIS
Link for fundamental analysis reports
• [Link]
[Link]
Appraisal of Intrinsic Value of Stock
• When considering the purchase of a stock,
investors should find answers to some key
questions
 Important Things to remember

Fundamentals What is the company's business, is it financially

sound -- and is it growing?
Price History How much have other investors been willing to
invest in the stock in the past?
Price target How much are investors likely to pay for the stock in
the future?
Catalysts What factors might impact the investors perception
about the stock in the future?
Comparison How does the stock perform when compared with
the peers in the industry?
Recent Development Check the recent developments about the company
Important Things to remember
• What does the company do?
• Analyse the business model+ analyse the value chain of a company
• How fast is the company growing?
• How profitable is the company?
• YOY – PAT, YOY – OPM, 5 years/ 3 years
• How is the company’s financial health?
• ROE, ROCE, NPM, ITR, CR, FL
• Altman Z Score, Ohlson Score, Piotroski Score
• How has the stock performed?
• 52 week low, 52 week high, no of shares
• Where is the stock’s support and resistance?
• What is the consensus of other brokers in the industry?
• Which top mutual funds hold the stock?
• What are the recent developments in the company?
• How does the company perform against its peers?
Unit4 -Fundamental Analysis
Unit Plan
• Fundamental Analysis-EIC Framework –
Introduction
• Economic Analysis
• Economic Forecasting
• Industry Analysis
• Industry Classification
• Company Analysis
• Qualitative analysis
• Quantitative analysis
Fundamental Analysis – Meaning and levels
Fundamental analysis is the process of looking at
a business at the basic or fundamental financial
level
Micro level analysis-if only one scrip is analyzed
Macro level-Whole market securities are
analyzed
Objectives
To make a projection on its business performance
To evaluate its management
To calculate its credit risk
To conduct a company stock valuation
Concept of
Fundamental Analysis
This is based on the assumption that a share price is
determined by fundamental factors related to
economy, industry and company
It is the examination of various factors such as
earnings of the company, growth rate and risk
exposure that affects the value of shares of a
company.
Fundamental analysis consists of:
 Economic analysis
 Industry analysis
 Company analysis
 E - I - C Framework
RESEARCHERS HAVE FOUND THAT STOCK PRICE CHANGES CAN
BE ATTRIBUTED TO THE FOLLOWING FACTORS:

 ECONOMY-WIDE FACTORS : 30-35 PERCENT

 INDUSTRY FACTORS : 15-20 PERCENT
 COMPANY FACTORS : 30-35 PERCENT
 OTHER FACTORS : 15-25 PERCENT

BASED ON THE ABOVE EVIDENCE, A COMMONLY ADVOCATED

PROCEDURE OF FUNDAMENTAL ANALYSIS INVOLVES A THREE-
STEP EXAMINATION, WHICH CALLS FOR:
 UNDERSTANDING OF THE MACRO-ECONOMIC
ENVIRONMENT
AND DEVELOPMENTS
 ANALYSING THE PROSPECTS OF THE INDUSTRY TO WHICH
THE FIRM BELONGS
 ASSESSING THE PROJECTED PERFORMANCE OF THE
COMPANY.
[Link] analysis
• The share price is determined based on the
performance of industry and economy
• Economy is booming, the company will be
prosperous
• Economy is recession, the company will be far from
satisfactory
Economic analysis is process whereby strengths and
weakness of an economy are analyzed
[Link] analysis
The investor will wish to invest in the securities of
specific companies belonging to a particular industry
that is doing well
[Link] Analysis
 It concentrates various aspects of company such as
financial and non-financial aspects
Unit4 -Fundamental Analysis
Unit Plan
• Fundamental Analysis-EIC Framework –
Introduction
• Economic Analysis
• Economic Forecasting
• Industry Analysis
• Industry Classification
• Company Analysis
• Qualitative analysis
• Quantitative analysis
Economic Analysis
It is the analysis of various macro economic factors
that have a significant bearing on the stock market.
The various macro economic factors are:
 Gross Domestic Product (GDP)
 Savings and investment
 Inflation
 Interest rates
 Budget
 Tax structure
 Research and Technological Development
 Infrastructural facilities
 Political Stability
 Agricultural output and Monsoon
Factors affecting Economic Forecasting
[Link] Domestic Product
GDP represents the aggregate value of the goods and
services produced in the economy
[Link] and Investments
Savings are distributed over various assets like equity
, deposits , mutual fund , real estate and bullion
[Link]
The demand in the consumer product industry is
significantly affected
[Link] Rates
A decrease in interest rate implies lower cost of
finance for firm and more profitability
[Link] and Agriculture
Agriculture is directly and indirectly linked with the
industries
[Link] Facility
Infrastructure facilities are essential for the growth of
industrial and agricultural sectors
[Link] Factors
The demographic data provides details about
population by age , occupation , literacy and
geographic location
[Link] Policy
Fiscal policy is concerned with the spending and tax
initiatives of the government
[Link] Policy
Monetary Policy is concerned with the manipulation
of money supply in the economy
 Fiscal Policy
• Fiscal policy is concerned with the spending and tax initiatives of the
government. It is the most direct tool to stimulate or dampen the economy.

• An increase in government spending stimulates the demand for goods

and services, whereas a decrease deflates the demand for goods and services.

• By the same token, a decrease in tax rates increases the consumption of

goods and services and an increase in tax rates decreases the consumption of
goods and services.
 Monetary Policy
Monetary policy is concerned with the manipulation of money supply in the economy.
Monetary policy affects the economy mainly through its impact on interest rates.

The main tools of monetary policy are:

• Open market operation
• Bank rate
• Reserve requirements
• Direct credit controls
• [Link]
cks/news/stock-prices-are-a-better-tool-to-predict-
gdp-trends-not-vice-versa/articleshow/71624242.c
ms
• [Link]
28ecOH3SO/Sensex-GDP-and-EPS-the-three-dont-t
[Link]
• [Link]
s-inflation-affect-the-stock-market-210423
Unit4 -Fundamental Analysis
Unit Plan
• Fundamental Analysis-EIC Framework –
Introduction
• Economic Analysis
• Economic Forecasting
• Industry Analysis
• Industry Classification
• Company Analysis
• Qualitative analysis
• Quantitative analysis
Economic Forecasting
Economic forecasting is a term used to apply to any
methods that are utilized to predict the future movements
of an economy
Types of economic Forecasting
[Link] Term Forecasting
Period of 3 years or less
[Link] Term Forecasting
3 to 5 years period
[Link] Term Forecasting
More than 5 years
Economic Forecasting
Forecasting the future state of the economy is needed for
decision making.
The following forecasting methods are used for analyzing the
state of the economy:
 Economic indicators: Indicate the present status, progress or slow
down of the economy.
 Leading indicators: Indicate what is going to happen in the
economy. Popular leading indicators are fiscal policy, monetary
policy, rainfall and capital investment.
 Coincidental indicators: Indicate what the economy is — GDP,
industrial production, interest rates and so on.
 Lagging indicators: Changes occurring in leading and coincidental
indicators are reflected in lagging indicators. Unemployment
rate, consumer price index and flow of foreign funds are
examples of such indicators.
 Diffusion index: It is a consensus index, which has been
constructed by the National Bureau of Economic Research in
USA.
 Forecasting Techniques
[Link] Surveys
The method in this category is those on opinions and attitudes
of forecasting or experts involved
a)Expert Opinion
b)Cross – Impact Analysis
Researchers identify a set of key trends in term of high
importance and high probability
[Link] Analysis Method
Based on the time series data of different economic indicators
these method held forecast economic changes
a)Trend Extrapolation
b)Trend Correlation
[Link] Indexes
 A diffusion index is an indicator of the extensiveness or spread of an expansion or
contraction
 The diffusion indexes are used to measure the degree of propagation of
economic expansions. They measure the proportion of the component
indicators that are improving. When the diffusion indexes are above the
threshold value of 50 percent, the economy can be interpreted to be in an
expansion phase; when below, in a contraction phase.

[Link] Indicators
 Monetary and financial indicators include information on interest rates, bond
yields and exchange rates.
[Link] Model Building
Econometric explains past economic activity by
deriving mathematical equation that will express the
most probable interrelationship between a set of
economic variables.
[Link] Model Building
a)Hypothesis of Total Demand
b)Test of Consistency and Comparison
Unit4 -Fundamental Analysis
Unit Plan
• Fundamental Analysis-EIC Framework –
Introduction
• Economic Analysis
• Economic Forecasting
• Industry Analysis
• Industry Classification
• Company Analysis
• Qualitative analysis
• Quantitative analysis
Industry Analysis
It is used to analyze the performance of the industries over
the years.
An industry is a group of firms that are engaged in the
production of similar goods and services.
Industry analysis involves reviewing the economic, political
and market factors that influence the way the
industry develops
Industries can be classified into:
Growth industry: Has high rate of earnings and growth is
independent of business cycle.
Cyclical industry: Growth and profitability of the industry
move along with the business cycle.
Defensive industry: It is an industry which defies the
business cycle.
Cyclical growth industry: It is an industry that is cyclical
Industry Analysis
Industry analysis involves reviewing the economic,
political and market factors that influence the way the
industry develops
An investor must analyze the following factors:
 Growth of the industry Ø Cost structure and profitability
 Nature of the product Ø Nature of the competition
 Government policy

Characteristics of Industry Analysis

[Link] sales and Earnings performance
It is a crucial input in forecasting future trends
[Link]
Technology developments and government rule play
an important role
[Link] of Government towards Industry
Should be aware of various government policies and
regulations
[Link] Conditions
Should examine labor laws
[Link] Conditions
a)Existence of Product Differentiations
b)Absolute Cost Advantages
c)Advantages rising from Economics of Scale
[Link] Share Prices Relative to its Earnings
Factors Influencing Industry Analysis
[Link] Line
[Link] Materials
[Link] Utilized
[Link] Characteristics
[Link] Policy
[Link]
[Link] Prospects
[Link] Factors
Frameworks of Industry Analysis
[Link] Life Cycle
2 Porters Five force Model
3 SWOT Analysis
 Industry Life Cycle Analysis
Many industrial economists believe that the development of almost every industry may be
analysed in terms of a life cycle with four well-defined stages:
• Pioneering stage
• Rapid growth stage
• Maturity and stabilisation stage
• Decline stage
[Link] / Introduction Stage
New Product Introductions
Demand Keep growing
[Link] / Growth Stage
Firm continue to improve financially and
competitively
[Link] / Maturity Stage
Slow progress
Social habits , high labor costs , technology changes
[Link] / Decline Stage
Result to lead in decline in profit , dividend and
share price
 Industry Life cycle - Implications
The experience of most industries suggest that they go through the four phases of
the industry life cycle, though there are considerable variations in terms of the
relative duration of various stages and the rates of growth during these stages.
Because of these variations it may not be easy to define what the current stage is,
how long it will last, and what would be its precise growth rate.

The broad validity of this theory and its general message that there is a definite
trend towards retardation of growth rates has several implications for you as an
investor.

• Give industry analysis prior attention in your investment selection process.

• Display caution during the pioneering stage—this stage has an appeal
primarily for speculators.
• Respond quickly and expand your commitments during the rapid growth
stage.
• Moderate your investment during the maturity stage.
• Sensibly disinvest when signals of decline are evident.
Marketing Finance
Popularity Cost Of Capital
Relative Market Share Funds availability
Quality Image Financial Stability
Service reputation Profitability
Distribution Cost
Sales force
Market Location

Manufacturers Human Resources

Facilities Leadership
Economic scale Management capabilities
Capacity Utilization Worker attitudes
Labor Productivity Skill Development
Manufacturing Cost Adaptation
Raw Material availability Industrial Relations
Technology
Industry Forecasting technique
• Market profile
• Cumulative Methods
• Market survey
• Correlation and Regression
• Time series
Unit4 -Fundamental Analysis
Unit Plan
• Fundamental Analysis-EIC Framework –
Introduction
• Economic Analysis
• Economic Forecasting
• Industry Analysis
• Industry Classification
• Company Analysis
• Qualitative analysis
• Quantitative analysis
Industry Classification
[Link] by Reporting Agencies
 RBI classified industries into 32 groups
[Link]
 National Stock Exchange classified into 12 groups
 Economic times classified into 10 groups
 Financial express classified into 19 groups

[Link] Cycle
a)Cyclical Industries
Purchasing Power
b)Defensive Industries
Inelastic Demand
c)Cyclical Growth Industries
Technical and Economic changes
[Link] Growth
a)Small Scale Units
Listed should be having a capital of 30 lacs
Listed in OTCEI
b)Medium Scale Industries
Capital 5 Crores
Regional Stock Exchanges like Coimbatore , cochin
c)Large Scale Industries
Paid up 10 Croes
Listed in BSE and NSE
[Link] Scale Classifications
Agro-Based
Forest Based
Metal Based
Marine Based
NSE Industry classification
• NSE Indices industry classification follows 4 tier structure. Brief
of four levels of classification for each company as detailed
below:
• Macro-Economic Sector: Indicates business activity of a
company at macro level
• Sector: Indicates specific sector of a company
• Industry: This level would indicate the industry classification of
the company
• Basic Industry: This is a micro level classification to indicate
the core business activities carried on by the company
• It consists of 12 Macro-Economic Sectors, 22 Sectors, 58
Industries and 201 Basic Industries.
• NSE Classification for RIL

• NSE Classification for SBI

Unit4 -Fundamental Analysis
Unit Plan
• Fundamental Analysis-EIC Framework –
Introduction
• Economic Analysis
• Economic Forecasting
• Industry Analysis
• Industry Classification
• Company Analysis
• Qualitative analysis
• Quantitative analysis
Company Analysis
In company analysis, the growth of the company is
analyzed by the investor so that the present and
future value of the shares can be known.
The present and future value of shares is affected
by a following number of factors such as:
 Competitive edge of the company
 Market share
 Growth of sales
 Stability of the sales
Company Analysis
the growth of the company is analyzed
the present and future value of the shares
determined
The present and future value of shares is affected
by a following number of factors such as:
 Competitive edge of the company
 Market share
 Growth of sales
 Stability of the sales
Company analysis
• Qualitative analysis– Non Financial analysis
• Quantitative analysis- Financial statement Analysis
Unit4 -Fundamental Analysis
Unit Plan
• Fundamental Analysis-EIC Framework –
Introduction
• Economic Analysis
• Economic Forecasting
• Industry Analysis
• Industry Classification
• Company Analysis
• Qualitative analysis
• Quantitative analysis
Company Analysis: Qualitative Issues
• Sales Revenue (growth)
• Profitability (trend)
• Product line (turnover, age)
• Output rate of new products
• Product innovation strategies
• R&D budgets
• Pricing Strategy
• Patents and technology
Company Analysis: Qualitative Issues

• Organizational performance
• Effective application of company resources
• Efficient accomplishment of company goals
• Management functions
• Planning - setting goals/resources
• Organizing - assigning tasks/resources
• Leading - motivating achievement
• Controlling - monitoring performance
Company Analysis: Qualitative Factors
• Business Model
• Corporate Governance
• Structure of the board of directors
• Financial and Information Transparency
• Stakeholder rights
• Corporate Culture
Company Analysis: Qualitative Issues
• Evaluating Management Quality
• Age and experience of management
• Strategic planning
• Understanding of the global environment
• Adaptability to external changes
• Marketing strategy
• Track record of the competitive position
• Sustainable growth
• Public image
• Finance Strategy - adequate and appropriate
• Employee/union relations
• Effectiveness of board of directors
Unit4 -Fundamental Analysis
Unit Plan
• Fundamental Analysis-EIC Framework –
Introduction
• Economic Analysis
• Economic Forecasting
• Industry Analysis
• Industry Classification
• Company Analysis
• Qualitative analysis
• Quantitative analysis
“Financial statements are like fine perfume;
To be sniffed but not swallowed.”

Dr. Abraham J Briloff, Ph.D. CPA

Emmanuel Saxe Distinguished Professor of Accountancy
Emeritus, Baruch College, CCNY
Financial Analysis
It involves analyzing the financial statements of the
company.
The financial statements of the company include:
Balance sheet: It shows the status of a company’s
financial position at the end of the year.
Profit and loss account: It shows the profit and loss
made by the company during a period.
Analysis of Financial Statements
It helps the investor in determining the financial position and
progress of the company.
The various simple analyses that are performed to ascertain the
financial position of the company are:
 Comparative financial statement: In this , data from the current year’s
balance sheet is compared with similar data from the previous year’s
balance sheet.
 Trend analysis: It shows the growth and decline of sale and profit over
the years.
 Common size income statement: It shows each item of expense as a
percentage of net sales.
 Fund flow analysis: It is a statement of the sources and application of
funds.
 Cash flow analysis: It shows cash inflow and outflow of a company during
the year.
 Ratio analysis: It is the numerical relationship between the two items.
Liquidity Ratios
• Measure ability to pay maturing obligations
• Current ratio
• Current assets / current liabilities
• Quick ratio
• (Current assets less inventories) / current liabilities
Debt Ratios
• Measure extent to which firm uses debt to finance
asset investment (risk attribute)
• Debt-equity ratio
• Total long-term debt / total equity
• Total debt - total assets ratio
• (Current liabilities + long-term debt) / total assets
• Times interest earned
• EBIT / interest charges
• Fixed charge coverage ratio
• (EBIT + Lease Exp.) / (Int. Exp. + Lease Exp.)
Profitability Ratios
• Measure profits relative to sales
• Gross profit margin ( % ) = Gross profit / sales
• Operating Profit Margin = Operating profits / sales
• Net profit margin = Net profit after taxes / sales
• ROA = Net Profit / Total Assets
• ROE = Net Profit / Stockholder Equity*
* Excludes preferred stock balances
Efficiency Ratios
• Measure effectiveness of asset management
• Average collection period (in days)
• Average receivables / Sales per day
• Inventory turnover (times per year)
• Cost of Goods Sold / average inventory
• Total asset turnover
• Sales / average total assets
• Fixed asset turnover
• Sales / average net fixed assets
DuPont Analysis of ROE
Net profits after taxe s Net profits
ROE  
Common stockholde rs' equity Common equity

Net Profit s Net Profit s Sales Total Assets

ROE    
Equity Sales Total Assets Equity
Ratio 1 Ratio 2 Ratio 3

Ratio 1 = NPM Ratio 2 = TATO Ratio 3 = Equity Kicker

The DuPont System suggests that ROE (which drives stock price) is a function
of cost control, asset management, and debt management.
Other Ratios
• Earnings per share (EPS): (Net income after taxes –
preferred dividends)/ number of shares
• Price-earnings (P/E): Price per share/expected EPS
• Dividend yield: Indicated annual dividend/price per
share
• Dividend payout: Dividends per share/EPS
• Cash flow per share: (After-tax profits + depreciation
and other noncash expenses)/number of shares
• Book value per share: Net worth attributable to
common shareholders/number of shares
Company Analysis: Quantitative Issues
• Operating efficiency
• Productivity
• Production function
Forecasting Earnings
• Traditional Methods
• Earnings Model
• Market Share or Profit Margin Approach
• Projected Financial Statements
• Modern Methods
• Correlation and Regression analysis
• Trend analysis
• Decision Tree Analysis
Estimating Earnings and
Fair Market Value for Equity
• Five Steps
1. Estimate next year’s sales revenues
2. Estimate next year’s expenses
3. Earnings = Revenue - Expenses
4. Estimate next year’s dividend per share
• = Earnings Per Share * dividend payout ratio
5. Estimate the fair market value of stock given next years
earnings, dividend, ROE, and growth rate for dividends.
• Using Gordon Growth model or P/E Model
Graham & Dodd P/E
• The Price to Earnings Ratio is a measure of the price
paid for a share /annual net profit earned by the
firm per share.
• The Graham & Dodds price-to-earnings ratio, is a
valuation measure usually applied to stocks or
equity markets.
• It is defined as price divided by the average of ten
years of earnings.
Cyclically-Adjusted Price-to-Earnings Ratio.
PEG Ratio
• The PEG ratio enhances the P/E ratio by adding expected
earnings growth into the calculation.
• The PEG ratio is considered to be an indicator of a stock's
true value, and similar to the P/E ratio, a lower PEG may
indicate that a stock is undervalued.
• The PEG for a given company may differ significantly from
one reported source to another.
• Differences will depend on which growth estimate is used in
the calculation, such as one-year or three-year projected
growth.
• A PEG lower than 1.0 is best, suggesting that a company is
relatively undervalued.
James Montier C score
• Montier's C-Score is a discrete score between 0-6
which reflects six criteria used to determine
whether a company is cooking the books (hence
the term “C-Score”).
• It was devised by James Montier who was then the
co-Head of Global Strategy at Société Générale. The
points are added to give an overall score. If a
company scores 0 there is no evidence of earnings
manipulation whilst 6 suggests there is lots of
evidence
James Montier C score
Question:
Piotroski F score
• The Piotroski score is a ranking between zero and nine that
incorporates nine factors that speak to a firm's financial strength.
• It was named for Joseph Piotroski, a Chicago accounting
professor who created the scale, based on certain aspects of
a corporation's financial statements.
• The nine aspects are based on accounting results over a number
of years; a point is awarded each time a standard is met,
resulting in an overall score.
• The Piotroski score is a favorite metric used to judge value
stocks.
• If a company has a score of eight or nine, it is considered a good
value. If a company has a score of between zero and two points,
it is likely not a good value.
Altman Z score
• The Altman Z-score is a formula for determining
whether a company, notably in the manufacturing
space, is headed for bankruptcy.
• The formula takes into account profitability,
leverage, liquidity, solvency, and activity ratios.
• An Altman Z-score close to 0 suggests a company
might be headed for bankruptcy, while a score
closer to 3 suggests a company is in solid financial
positioning.
Altman Z score
Forecasting Earnings
• Identifying Variables for forecasting
• Operation and Earnings details- ROI
• Capital structure-Debt and equity
• Forecasting methods
• Traditional methods
• Earnings Model –ROI calculation
• Market share/Profit margin Approach
• Projected Financial statements
• Modern Methods
• Correlation and Regression analysis
• Trend Analysis
• Decision tree approach
Ohlson O-score
• James Ohlson developed this financial model to
assess a company's possibility of facing financial
distress or bankruptcy. It combines nine financial
ratios and accounting variables to calculate a single
score that reflects a company's financial health.
Investors, analysts, and lenders commonly use the
O-score to evaluate a business's creditworthiness
and make informed investment decisions.
• It provides a quantitative measure for distress risk,
where a higher score indicates a higher chance of
encountering financial distress.
 Mohanram G Score
• G score was developed by academic researcher Partha
Mohanram as a way to measure the financial strength
of a company.
• Mohanram looked at the qualities that separated
growth stocks that went on to perform well vs. those
that did not.
• This score, which ranges from 0 to 8, measures the 8
attributes he found led to better future performance.
Mohanram G score
The calculation of the Mohanram G-score consists of eight criteria. Assign one point for each criterion met, then add up all the points to get the G-Score.
Profitability
Question 1. Return on Assets (ROA)
ROA % is calculated as Net Income divided by its average Total Assets over a certain period of time. It measures how well a company uses its asset to generate earni
Score 1 if ROA > ROA Industry Median, 0 otherwise.
Question 2. Cash ROA
Cash ROA equals to Cash Flow from Operations divided by average Total Assets. It measures how well a company uses its asset to generate cash.
Score 1 if Cash ROA > Cash ROA Industry Median, 0 otherwise.
Question 3. CFO and Net Income
Score 1 if CFO > Net Income, 0 otherwise.

Earnings Predictability
Question 4. Earnings Variability
Earnings Variability is measured as the variance of a firm's ROA in the past five years.
Score 1 if Earnings Variability < Earnings Variability Industry Median, 0 otherwise.
Question 5. Sales Growth Variability
Sales Growth Variability is measured as the 5-year variance in sales growth.
Score 1 if Sales Growth Variability < Sales Growth Variability Industry Median, 0 otherwise.

Accounting Conservatism
Question 6. Research & Development Intensity
Research & Development Intensity is calcualted by Research & Development divided by the beginning Total Assets.
Score 1 if Research & Development Intensity > Research & Development Intensity Industry Median, 0 otherwise.
Question 7. CAPEX Intensity
CAPEX Intensity is calcualted by Capital Expenditure divided by the beginning Total Assets.
Score 1 if CAPEX Intensity > CAPEX Intensity Industry Median, 0 otherwise.
Question 8. Advertising Expenditure Intensity
Advertising Expenditure Intensity is calcualted by Advertising Expenditure divided by the beginning Total Assets. Note that Advertising Expenditure is not reported as a
Score 1 if Advertising Expenditure Intensity > Advertising Expenditure Intensity Industry Median, 0 otherwise.
* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated
* Note that all the Industry Median used for comparison in his original research, are substituted with Sector Median due to the limitation of data within certain countries

Good or high score = 6, 7, 8

Bad or low score = 0, 1
Q1: Identify the best security for
investment
 Q1: Identify the best security for
investment

Best stock- Britannia

Question 2:

Identify the best stock for investment

Particulars Company ACompany B

PE ratio 50 60
Growth rate 25% 25%
Question 2:

Identify the best stock for investment

Particulars Company ACompany B

PE ratio 50 60
Growth rate 25% 40%
PEG ratio 2 times 1.5 Times
Question 2:

Identify the best stock for long term investment

Rs in crores
Particulars Company A Company B
PE ratio 50 60
Growth rate 25% 25%
Working capital 50 200
Retained Earnings 150 350
EBIT 60 150
Market capitalisation 250 600
Total sales 500 600
Total Assets 800 800
Question 2:

Identify the best stock for long term investment

Rs in crores
Particulars Company A Company B
PE ratio 50 60
Growth rate 25% 25%
Working capital 50 200
Retained Earnings 150 350
EBIT 60 150
Market capitalisation 250 600
Total sales 500 600
Total Assets 800 800

Answer in excel sheet

Tools of Analysis
(Additional Materials)
Correlation Analysis
• Correlation analysis in research is a statistical
method used to measure the strength of the linear
relationship between two variables and compute
their association. Simply put - correlation analysis
calculates the level of change in one variable due to
the change in the other.
Correlation Analysis
Regression Analysis
• Regression is a statistical method used in finance,
investing, and other disciplines that attempts to
determine the strength and character of the
relationship between one dependent variable
(usually denoted by Y) and a series of other
variables (known as independent variables).
Regression Analysis
Regression Equation
Regression Equation
Trend Analysis
• Trend analysis is a strategy used in making future
predictions based on historical data. It allows to
compare data points over a given period of time
and identify uptrends, downtrends, and stagnation.
Trend Analysis
Trend Analysis
Decision Tree Analysis