SECURITY ANALYSIS

Ganesh Krishna,
M.S.Satish Kumar,
R.Bharath Kumar,
S.Arun,
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
 The dividends of the firm
determines market value of
the company’s equity.
P = M {D + E/ 3} + A
p = share price.
M = earnings of a company.
D = dividend price.
E = EPS.
A = adjustment for asset values.
EZRA SOLOMON’S Model
Market value of a share is
the sum of two discounted
values.
P = V1 +V2
 p = market value of the firms
share
V1 = present value of the
earnings from current
investments.
V2 = present value of earnings
of future investments.
TOP GAINERS..